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Crude, in the zone

24,000 contracts!

Oil was very exciting today!  A comment like that must sound weird to a non-trader.  But if you follow a product daily, it’s like following a story.  Like a serial tv show, but also a story in which you’re taking part.  And of course, if you have money on the line, that adds to the charge.

Wednesdays are inventory days.  News days in oil, like most products, are the days price gets volatile, and usually trends.  In oil, news happens once a week.  There is also minor news, like rig counts.  But Wednesday inventory reports are the big days.

Like earnings reports move stocks, or FOMC (Fed Open Market committee) reports move markets, oil inventories move oil.  But not necessarily in the direction that “makes sense.”  That’s why holding a position in to earnings, even if you think you know how the report will turn out, is risky.

Sometimes the argument for why markets move contrary to the news (down on good earnings, up on bearish reports, etc.) is that the “market has already priced in the news.”  Debatable.

I like to trade inventory days, because it’s quick, and price goes far.  There are quick gains, and quick losses, not necessarily in that order.  The trick to trading news is similar to trading any impulse.  Wait for buyers or seller to show themselves, then try to get on board on a pullback.

However, sometimes, like today, the first wave is entirely taken back by the second wave.  So you can find yourself rapidly under-water, like I did.  This happens to me frequently on inventory trading days.  And as usual, I reversed, and came out positive.

I’m still refining my technique on trading these days.

The story line

Anyway, here is how the story stood, as of yesterday, Tues, Aug 2, 2016


Price had broken below the critical level of $41.79, which I chronicled in my Oil Bellwether post.  I suggested that this signaled to me that oil was in for a longer period of sideways to down action after this day.

Next it retested that breakdown level, and set up the great short, where Brendan made a killing, that I journaled in Innovation and Responsiveness 2.  Brendan’s big down trend trade was the impulse away from the important area above.  Tuesday pulled back to exactly 50% of that impulse and made a continuation move.  A perfectly technical trade.

The continuation move completed the impulse, and stopped just short of 61.8% of the large up move.

Even though I suggest that breaking below the 50% level was a bellwether for more depressed prices, the 61.8% fib is a very strong support on a large time frame.

My Tuesday prediction for Wednesday

So at the end of Tuesday, I made this prediction.  Price will wander up to about $40.10.  You can see (below) that was the close of Monday, and halfback on Tuesday.  Then I predicted the first hour of trade on Wednesday would take price down, and take out that $39.20 by just a bit.  I believed the line had to actually be crossed, but then it would support.  Then I predicted we’d get an up-trend on inventory news.

Here’s what happened.

Price did wander up over-night as predicted.  It opened at $39.96, spiked up, stopped 7 cents short of my level, turned around, and made an impulsive move down, but it stopped well short of the $39.20 low, where I thought it needed to touch base, to launch the run up.

8-3-16 before news

So now I was confused.  Often my predictions turn out correct, but the market accomplishes them in ways that surprise me.  The trick as a trader is developing the knack not only to predict, and make plans and plays based on the prediction, but also to interpret the action as it happens.

If you’re wrong, you have to stop out.  No questions asked.  But if you’re right, but it doesn’t happen the way you thought, ideally you can still profit.  In this case it was difficult.

My thinking had shifted.  I thought now that, since price had never retested that $39.20 level, the direction for the day might be down.  How would it get down there, then get all the way back up here?  When the inventory report was released, here’s what happened in the first 2 minutes.

8-3-16 2 min after news

That certainly looked like an impulsive down move.  I got short in that second minute.  3 minutes after that, I was deep under water.  A huge player bought 24,000 contracts, and it stopped price 1 penny under my predicted wash out level of $39.20.  He bought every contract for sale between $39.20-$40.45.  On a bar chart it looked like this.

8-3-16 5 min after news

I reversed, and was now long.  It was a messy day, but it ended up profitable.  The rest of the day looked like this.

8-3-16 after news

For a trader with their wits them, there was a perfect entry, on a 50% pullback of this huge move, at $39.82.

8-3-16 halfback

I ended up with a $40.10 average, so it still worked out.  But sloppy.  Plus, the Comcast box went down right in the middle of this, and I lost internet!  Urg.

Here is how the event looked in Bookmap.

8-3-16 BM after news

And zooming in on those precise 5 minutes.  You can see the massive 24.000 contract buy in all those yellow dots, representing buying through all offers.

8-3-16 BM after news zoom

The fall started at $40.46.  The first bounce was from $39.44, and bounced from $39.52 ish to about $39.85.  You can’t even see this on a 1 minute bar chart.  So it didn’t even get back to 50% of the down move before flushing further.  I caught a messy short in that chaos.

The big buyer stepped in at $39.60 or so, and price only happened to stop and reverse 1 penny under my level.  It’s amazing that that could happen so accurately.  It does not seem planned.  His buying started before it reached that level.  By the end of that day, he was up $3-4 million, and climbing.

And this was all on negative inventory news!  A build….inventories growing.  The entire slide from $52.78 happened mostly on down trend days after inventory reports.  And almost all those inventory reports causing the down moves were draws.  Theoretically bullish.

Buyers and sellers of this size are clearly “other time frame,” OTF, to day traders.  Day traders call themselves locals.  And these guys are from out of town.  They are clearly looking at some technical things, like the 61.8% pull back level.  And previous support from the spring.

In fact, they might be the same buyers, who then were the sellers pushing price down after it had topped.  It could literally be the same bigger time frame buyers stepping back in here.

But in the short term, they technically rip charts to shreds.  It’s interesting that when the dust settles, the locals who are left standing, return to the technical process, like 50% of that large up move.


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