CLU12 - Update for July 20th, 2012

Price analysis for the week of July 20th, 2012:

(Rollover to Sept. Contract - CLU12)

Market Overview: Specifically with regard to Crude Oil, tensions within the middle east seem to be trumping horrible economic trends/data world wide. Very interestingly, dramatically changing supply & demand structures are in play at the very same time. From the demand side, global recessionary fears are building and the Euro zone has yet to deal with an overwhelming debt burden that may drag the entire region into economic upheaval. From the supply side, several conflicts within the Middle east (one of which may directly effect Crude Oil's consistent flow of supply out of the Persian Gulf) seem about ready to boil over. This is serious stuff; lets hope it doesn't ignite a global war. Frankly, I am extremely cautious at the moment. In my weekly CTS commentary I have suggested 'investors' stay in cash for the next six to twelve months as literally anything is possible from week to week and month to month. Given too, the dramatic change in both the supply and demand structures, I don't think anyone can clearly put a fundamental value on the commodity at the moment. As a result, prices can and probably will move in absolutely incredible increments as traders somehow try to put a value on any new flow of fundamental news. Heaven forbid we get a nasty hurricane in the Gulf of Mexico this year....

Trading Strategy (1 month): While Investors have the luxury of just sitting in cash for months on end, we traders do not. We need volatility to make money and oh boy do we have that. Late summer is seasonally an ok time for the market and given the upcoming US presidential elections (Nov. '12) I find it hard to believe we are going to break too hard from current levels. Having said that, the bottom of the current trading range ($80 area) is over $10 away, while the top ($95 area) is less than $5 away. This suggests we are vulnerable to a bit of a correction over the coming sessions and that is what I am looking for going forward. I shall be looking to sell rallies into the $95 area and buying sell-offs into the $85 area.

Trading Plan for this coming week: As mentioned above, short term momentum indicators need a bit of time to clean up before the next leg higher. While they do, a 50% correction of the 5 day up move would suggest $90 as a reasonable target. As well, the original 'C' point in our daily ab=cd bull pattern has yet to be checked in earnest. That low (84.05) ought to be tested.

 

Focus for the week: Continue to work with using the hourly chart for targets/breakouts and the 9 period ema on the 15m chart for entry points. Additionally, my primary goal for this coming week is 'process goals'. In that I want to create an algorithm trading style wherein the same process is repeated exactly the same way for every trade.

Process outline: On 15m signal, enter order (on stop) to take a position on 2 (two) contracts (AOCO.....-06 [for total risk of $130] / +10 & +40). AOCO means that once the primary open order is filled there will be an automatic exit order entered on 1 (one contract) at plus 10 ticks ($100) and one (1) at plus 40 ticks ($400). Additionally, there will be a stop loss order entered on 2 (two contracts) at minus 6 ticks ($120). Once the first exit order is filled (at plus 10 ticks) the stop/loss on remaining one (1) contract is moved to b/e+1 (or +1 tick from where the original entry. 

 

Comment: While I have noticed that quite often the market will come back and re-check the entry price, I am happy with this approach as it 'guarantees' a risk free trade on the remaining 1 contract. And in this business, as soon as one can get themselves in a relatively risk free position, the better...

That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca
http://crisdaytrading.blogspot.ca/