Crude Oil - tag category postings

This is just a quick update.  I sold the DXO ETF that I was talking about a few times before.  My average price on this sale was 3.14 and my average buy was 2.32.  So the gain on this trade was about 35.4%.  Not bad for an ETF.  I did not want to be a pig on this one.  I believe the DXO ETF will go a lot higher and probably eventually will pop all the way up to 6, roughly corresponding to a move of 70 dollars in the crude oil price.  We are talking a minimum retracement from the literal crash that occurred in the crude oil price since last year.

So why did I sell today?  We are coming up into the top range of a resistance channel.  It is possible we could blast right through it, but you know what? I don’t care because 35.4% is quite acceptable and again… I just don’t want to be a pig.

By the way, I don’t know how many actually follow along here, but if anyone is actually following my trades or looking for signals keep in mind that it is very important for you to do your own due diligence on any potential trades.  But I have to say flat out that sometimes there may be slight delays between the time I actually execute a trade (either a buy or sell) and the actual time that I write about it on here. Actually, sometimes it may be much more than just a slight delay.  Perhaps at some point this will change but for now that is the protocol.

It is pretty amazing how things have changed in only about a couple of weeks.  Before 2 weeks ago it seemed like the end of the world.  But now it looks like a massive global reflation is taking place and commodities are leading the way.  It seems that commodities will lead the way up in this reflation and then stocks will follow, that seems to be the pattern right now and crude oil is no exception.

I am still long the DXO double long Crude Oil ETF right now we are trading at 2.72. My entry was 2.32 after earlier being stopped out from an earlier position.  The overall structure of this ETF still looks good as I have already talked about before here.  I still like the setup and like the fact that we are sitting on a huge long term support level in crude oil.

Come to think of it, that is probably one of the most favorable types of setups I like.  When you have something come down to a very long term support line and then bounce around a bit before building up enough steam to try and move higher.  It just makes a lot of sense from a risk reward point of view.  Buying something in the first third, second third or last third of its mark up can still make you a  profit, but in my experience there is always more potential downside risk for the simple reason that the longer something moves up, the more reasons there can be for people to want to take a profit.

The downside of trying to enter positions in any stock index or ETF after a long bear market decline is that there is a tremendous amount of volatility before a new uptrend can begin in earnest.  For example you can have a 50% off of the bottom, only to retrace 100% of it so that more basing can be achieved.  Now the volatility can be good of course if you are nimble enough to trade all the little swings, but can also cause a lot of churning in your account.  So what I try to do is wait for that sign of preliminary demand, then let it retrace as long as it needs to and then look for a double or triple bottom before entering.

Anyway,  I am looking for the DXO to hit 3.5 or the top of this trading range before the next consolidation.  Crude Oil Inventories are coming out tomorrow morning at around 10am so perhaps this is a run up into the news? We shall see.  But regardless of what happens tomorrow, the crude oil price still looks like it wants to build a foundation here for a natural retrace to somewhere near 70 eventually. I am only looking for 3.5 however as far as the DXO is concerned.

  Chart Source: MarketClub

Adam Hewison from ino dot com made a great video about crude oil recently and makes a few interesting points about the crude oil market going forward that are worth listening to. 

You remember me talking about the long position in DXO (the double crude oil long) that I entered earlier?  By the way I am still in that position but realize I may have to deal with some left over choppiness in the crude oil trading action near term.  However it still looks good for an upside bounce, and maybe a major upside bounce? How major? Well Adam talks about the fibonacci retrace levels in his video since this market topped out in July of 2008.

The truth is that a reasonable normal fibonacci retracement of this entire down leg in crude oil should put it somewhere near 70.  That equates to about 5 or 6 for the DXO ETF.

But when will it get there?

Predicting time targets is very difficult, but if I had to guess I would say it could get there by the latest the July time frame, and then come back down into a more longer complex type correction that sees crude oil basing out.

The issue is we just want to try to get that initial JUICE out of a ripe orange, know what I mean?  What happens after that is really irrelevant for now.

Oh yea, one other thing I forgot.  It is time to start paying attention to the US dollar Index.  I believe it may have topped, and topped in such a way that many longs could be trapped in it.  All I can say is that when it comes to the US Dollar, don’t dip your hand in that cookie jar too many times or you may have some nasty surprises after that.

It looks like the US Dollar Index may have formed a marginal new high but then closed back under the trading range. That is a similar type of setup that the Dow Jones Industrial Average did during the 2007 highs! It trapped everybody up there and then took then down fast for a beating.

Why am I mentioning the US Dollar Index???

Because if we get a severe correction for the next 30 days which is starting to look likely, that would be the PERFECT fuel this crude oil market needs to get a spike UP retracement rally.

I am pretty confident in this setup but we will have to see how it pans out.  Everything seems to be coming together now.

One last point about Adam Hewisons video… I agree with everything he says, the only thing I do not agree with is that a rising crude oil price will right away cause problems for the stock market.  I believe the stock market will go up now even if crude continues higher for the simple reason that the stock market also loves a weak dollar which is inflationary.  Now eventually the stock market may get stuck in a stagflation but for now I think all of them could go up since they are all so oversold.

I was stopped out of the DXO ETF position I told you about a few days ago. I re entered today however at 2.32 and will be more flexible about how much downside I can take here.

The problem with these double and triple type ETFs is the enormous volatility.  Timing really needs to be razor sharp and the amount of noise that goes on before the ETF actually goes in the direction you want it to can be costly.  However I am still bullish on the DXO ETF and believe a new more sustainable uptrend will be soon starting.

As I mentioned before, crude oil is sitting on a very long term support line and the risk seems less and less to the downside.  Now if we can get the general equity markets to recover a bit it  will go a long way towards bouncing crude oil back up to 70 dollars.  The 70 dollar area is actually where I am looking for the bounce to lead to as a first stop.  That would put the DXO ETF somewhere near the 6 level. 

My tendency is to sit tight and be right with this one.  The next major battle is at the 3.7 area where it failed the last time. If we can take out 3.7 then it opens the door eventually to 6.

Certainly a warmer spring and summer season could help us along in the DXO.  I sure would not mind that either since even now in March it is still very cold up here!

Yesterday I went long the DXO double crude oil long ETF.  My entry was 2.18 and my stop is at  2.05.

This seems like a  pretty good risk reward type trade. The price of crude oil itself has come down twice now to the 35 to 40 range.  the 35 to 40 range happens to be something  like a  15 to 20  year support line.  It is an area where crude oil has fought many battles over the years.  That tells me that price should remember this and be able to hold this level as a good bottom to bounce off of.

The DXO ETF as shown in the chart above has done what looks like a double bottom of sorts. I think we could see a move back up to the 3.55 range which is the top part of this trading range. Whether or not DXO does a successful breakout of that area remains to be seen. I would like to hold this trade and let it run a bit because of the double bottom setup and other things happening in the marketplace.

If I am wrong and this reaction is not ready bounce enough yet then I may get stopped out at 2.05.

Part of the dynamics of the crude oil move at least to me depends to a certain degree on the US dollar index and the general stock market as well. Everyone and their brother has been waiting for a big relief rally in the stock market.  That actually may be starting right now or very soon, perhaps in very early March. If we can get both the stock market to go up and the US dollar index to go down it seems that would give DXO a sustainable rally.

If the US dollar index were to top here I can see it providing a very nice bounce upwards to crude oil.  But I do have to say that it is still too tough a call for me right now to say what the US dollar index will do.  I can see it breaking down now, but can as good a case for it breaking out as well.

Incidentally if the stockmarket wants to get a good rally going here then one would think it needs the US dollar index to fall down again. So maybe that is what will happen and we will see a perfect storm develop for the crude oil.

A counter trend bounce in the crude oil market from its all time highs could take it to 70 dollars.  That would put DXO ETF well north of 5 or 6.