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Moby Waller
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Moby Waller is a former CBOE Market Maker floor trader and off the floor London-based European Index Options Trader. He is co-Portfolio Manager of the ETFTRADR & Rapid Options Income ROI... More
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  • Crude Oil & Energy Stocks, Technical Analysis And Trading Breakdown

    Oil (and its accompanying energy stocks and ETFs) is probably the 3rd most widely followed trading instrument in the world (behind stock indices and gold). Crude Oil has really been somewhat quiet now for several years in the big picture, but something may be 'bubbling up' soon for energy stocks.

    We'll look at the US Crude Oil ETF (NYSEARCA:USO), Crude Oil Continuous Futures, SPDR Energy Select ETF (NYSEARCA:XLE) and Market Vectors Oil Services ETF (NYSEARCA:OIH) as some of the most widely followed ETFs in this field - and each does have a different story to tell. All of the charts here are stripped down of most indicators to see the major trendlines and patterns.

    First the big picture on USO, see the first chart below. Here you see the parabolic bubble that developed in 2007 and crashed hard in 2008. Since then, USO has basically been in a narrow sideways range for 4 years now.

    USO Weekly Chart
    (click to enlarge)

    Now, USO does tend to lag the underlying Crude Oil Continuous Futures in performance. This is largely explained by most due to the contango in the ETFs makeup and rules - something to keep in mind if you're a long term investor in USO (as a shorter-term trader it's not as likely to be a major effect). See the long-term Crude Oil chart below, same bubble and crash as USO, but a much more defined recovery. That recovery has stalled, however, since 2011. But overall, we again see years of churning and consolidation. with some fairly clear trendlines.

    Crude Oil Weekly Chart
    (click to enlarge)

    Zooming a little bit on USO, on the Daily Chart next below that goes back to mid-2012, there has been a mild narrowing formation going on. See the article we recently posted on Triangle Patterns for more discussion of these. In this case, the lower highs form a downward slope to the consolidation - but they also have acted as resistance to rallies multiple times. There is a good support line of buying around the 31/31.5 area. A narrowing of this range and a breakdown of that support would be an indication of a further breakdown in USO (could take some time to develop). From there, 30 is the next line of support (also been a key technical area), but below that you're looking all the way down to 26/25 or even lower from the 2008/2009 lows and key levels. If the trendline formation is broken to the upside and USO breaks out, the 36 area is the first likely target, beyond that lies the 40 strike which has been key several times in recent years.

    USO Daily Chart
    (click to enlarge)

    Now on to the most widely known ETF for energy stocks - XLE. On the long-term XLE chart below, note that it recovered nicely from the plunge, reaching old key levels by the beginning of 2011. You can see 80 and 90 are important levels on XLE going back many years. Note that XLE has recently taken out 80, where it failed previously several times.

    Sidenote, we often focus on the round levels and strike prices, using 80 for example rather than 80.14 … we've discussed this previously, but for longer-term analysis the round number area itself is appropriate to focus on, it's usually not necessary to go out to decimal point specifics. Also, round numbers and key levels are watched by many people and are psychologically, technically and sentiment-wise important and can become self-fulfilling prophecies at times. Finally there is the matter of option open interest, which can affect a stock/ETF/index around those key levels due to market maker delta/gamma hedging and other factors.

    XLE Weekly Chart
    (click to enlarge)

    Zooming in on XLE a bit to the Daily Chart since early-2011, you can see below that it is also forming a narrowing range pattern - but in this case it is to the upside. Higher highs and higher lows form this since October 2012 - not a steep angle on the narrowing (some might view this as more of a trend channel), but it is there.

    Note in early-Mary we just broke above both the upper trendline and the 80 level - and since came back and tested that level and have resumed higher just in the past 2 trading days. This looks like a fairly significant breakout occurring. And there isn't much overhead resistance to worry about on the way to 90 (the 83 and 85 levels are targets along the way).

    XLE Daily Chart
    (click to enlarge)

    Another major Energy Stock ETF (we trade all of these ETFs successfully short-term with specific option trade recommendations in the BigTrends ETFTRADR program) is OIH. Despite one being 'Energy Services' and one 'Energy', OIH and XLE actually have some similar holdings and performance with a couple big exceptions: 31% of XLE is in Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) with the 3rd biggest holding being Schlumberger (NYSE:SLB) - while OIH has 19% in 'Schlum-Dog' (as we used to call it on the trading floor) as its biggest holding and doesn't hold XLE and CVX. That in itself explains most all of the difference in performance in the 2 ETFs.

    Anyway, see on the OIH Daily Chart below covering the same time frame as the XLE Daily, it has lagged. XLE has reached (and now overtaken) its 2011 levels, while OIH is 10+ points below those levels. But OIH is also forming an upward sloping pattern. This too looks likely to be broken to the upside.

    OIH Daily Chart
    (click to enlarge)

    Bottom Line: Crude Oil has been consolidating for some time now. USO is narrowing and may break down a bit shorter-term. But even with the rather moribund performance of Oil, Energy Stocks are charting their own course. XLE has just broken to multi-year highs and OIH is forming a bullish looking pattern. Remember that these are longer-term charts (even the Daily ones cover quite a bit of ground), so keep an eye on these narrowing formations we've pointed out and look for breakouts/breakdowns of key support and resistance levels.

    by Moby Waller,
    co-Portfolio Manager, ETFTRADR and Rapid Options Income

    (click to enlarge)

    Jun 11 10:04 AM | Link | Comment!
  • Key SPX Fibonacci Retracement, Support And Percent R Levels To Watch On This Pullback

    Since the market began its latest trend rally in November 2012, we've had several pullbacks. Each of these was very rapid in nature and not very deep - reversed back higher quickly. Now, we're in the midst of another pullback - with news from Europe and the US (and Japan/China) looming before the end of the week. What are the key levels to watch on the S&P 500 Index (SPX) (NYSEARCA:SPY) and the market (NYSEARCA:DIA) (NASDAQ:QQQ) (NYSEARCA:IWM) going forward?

    See the SPX Daily Chart below with Fibonacci Retracements, Support/Resistance Levels and Percent R. We've added a new Fibonacci Retracement from the Nov 2012 SPX low of 1343.35 to the May 2013 high of 1687.18.

    Note the previous pullback we had in April of this year, after the market had made new all-time highs at 1593.37 (and amid terrorism troubles and a huge plunge in Gold) - at that time, our analysis pointed to 1534 and 1497/1500 as the first likely potential bottom/reversal points on that downtrend. In actuality, the SPX bottomed quickly at 1536 and resumed going higher.

    In the current case, the question is whether this trend of quickly reversing higher will continue - seen clearly by Percent R on the following chart (but do note the worsening Percent R move on each pullback). At this time the default underlying trend has been higher, so you have to lean to the side that we will bottom fairly soon and at least consolidate sideways if not move higher.

    But what are the key levels to look at for the SPX if we do keep going lower - see the chart below (if you click on the chart it brings up a bigger version of it):

    SPX Daily Chart
    (click to enlarge)

    The first major signpost is basically upon us already - with the SPX closing at 1608 on Thursday, we're already near the 1606/1600/1593 which is the first logical stopping point. So it is possible that the key bottom/reversal point is already nearly here.

    If the short-term downtrend accelerates rapidly (which doesn't seem likely at this time) or grinds lower in a choppy fashion (could occur throughout this summer, especially given the big up move the market has already made in 2013), keep an eye on the SPX 1515/1500 area - this would mark a 50% retracement of the November 2012 lows to the May 2013 highs.

    As we've discussed previously, a 50% retracement is something we see time and again on pullbacks with bigger trends and is a logical place for a pause - whether or not you care about or utilize Fibonacci Retracements, the 50% retracement is an "obvious" one that really can't be denied. It basically means that once a trend has given up half of its gains (or losses), that is a likely area to pause/reverse.

    Right now, we're focusing on that 1600 SPX round number as support (and the accompanying support around it). Remember also that big round numbers are important to the market as sentiment, widely followed, psychological importance and also as key option strike prices with large open interest - they often become self-fulfilling prophecies in a way. If things continue lower in the coming weeks/months, the 1500 level comes into view as a downside target.

    Finally a related side note on the CBOE Volatility Index (VIX) (NYSEARCA:VXX) - this measure of option implied volatility also shows expectations of forward volatility among option traders and the "fear" level. On the current pullback the VIX has reached near the 18 area - this was the basically the same high area reached on those quick pullbacks in February and April of this year. On the December pullback at the end of the last calendar year, the VIX quickly spiked to 23 before rapidly heading back lower.

    by Moby Waller
    co-Portfolio Manager, Rapid Options Income & ETFTRADR

    Jun 06 9:19 AM | Link | Comment!
  • Why The Plunge In Gold Is Near An End

    The recent plunge in Gold has been one of the leading talking points among many traders and investors out there for some time. The who/what/where/when/why of the acceleration of the downtrend in Gold ( (NYSEARCA:GLD) ETF) has been speculated on by many. It is rumored that a legendary investor has lost billions by doubling down on a losing Gold bet during the downtrend (stubbornly doubling down on losing trades is normally a bad proposition in our view). Not to mention the constant chatter of the many Gold perma-bulls, who have been arguing for some time that a bottom or the next upleg is here -- and the Fed policy critics who point to a Gold rally as an inevitable result of global fiscal policy (which may end up being correct in the long run).

    However, as we always say at BigTrends, the chart tells the tale (to paraphrase Jessie Livermore) -- and the trend in Gold has largely been down since it topped in late 2011. We've profited on GLD, the Silver ETF (NYSEARCA:SLV), Gold Mining Stocks, Metals, etc many times in BOTH directions throughout recent years in our ETFTRADR and other real-time option trade recommendation services.

    So as I mentioned, we've had no problem riding Gold and other metals downward recently -- but now, amid a cacophony of volatility, a clear picture emerges on the long-term GLD Weekly Chart. Using a Fibonacci Retracement of the 2009 lows to the 2011 highs, we see that a perfect 50% retracement in the old GLD rally is close upon us. If you're not familiar with Fibonacci, it's a mathematical formula and series of numbers created by an Italian mathematician in the 12th century -- Fibonacci patterns and sequences are seen and used in nature, science, astronomy, finance, and many other fields (it occurs so often in nature that is it far from a coincidence). See the chart below:

    GLD Weekly Chart
    (click to enlarge)

    The 127.36 level on GLD is a 50% retracement of the uptrend -- regardless of whether you see a value in Fibonacci Retracements or not, the 50% one is a logical, key area to pause a trend which we've seen occur time and again. It basically points to the level where a stock has given up half its previous rally. So we are near a very likely area for GLD to pause the downtrend and likely consolidate (a bounce then a re-test of that level is also something that occurs often). If we do overshoot to the downside, that is also within reason given the overall bearish technical picture and the multiple simple trendlines that GLD has violated recently.

    Zooming in to a stripped down version of the GLD Daily Chart will be helpful as well -- see the chart below:

    GLD Daily Chart
    (click to enlarge)

    So, above you can see that we've already approached and are near that 127.36 Fibonacci level. Also note how the violation of the trendlines led to more downside. But finally, there is this interesting volatile pattern that's emerged since the big 2 day gap/drop down last month (after the historic 2 day drop in Gold). This technical pattern resembles a Greek "Omega", and looks to be a setup for another big move. Some may view this as a possible bullish island reversal pattern being created -- but it looks like a "volcano" or "plateau" island to me, which is unusual.

    It will be interesting to watch how this plays out in the coming weeks and months in Gold -- but definitely keep an eye on that 50% retracement level as a likely bottom for GLD in our analysis.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: BigTrends Rapid Options Income and ETFTRADR clients have open options positions in GLD and SLV.

    Tags: SLV, GLD, options
    May 23 4:41 PM | Link | Comment!
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