Turning tide, nope!
(Oh, THAT tide…)
Hyper-extension. Ouch. Hey, That’s not funny.
Ok, Clint, what now?
Sometimes you feel like a nut, sometimes you don’t.
Hypo Z again, is this becoming a recurrent theme?
When does hypo z become hypo 1?
A note on blog flow
My blogs are a stream of consciousness. I’m thinking things through. Ideas tend to build on each other. So that often, the bigger realizations for me come later on. In the case of today, the really big epiphany is stated late. The lightbulb about ACCUMULATION.
The oil wave today entered the 2016 record books. Undeniable display of strength, no matter what the reason, no matter what happens next.
The only other comparable size and tempo up move was from 4-4.
My confusion before when I looked at that one was, I saw the small balance day in the middle, and thought, we are now hyper extended, because the current move is one relentless up move, with no balance.
What I failed to notice is that the move from 4-4 took 6 days, just like this one now has. And what happened after that wave?
It pulled back about $3, nowhere near 50% of that wave, then launched in to a series of more up waves. 5 more up waves! Depending how you look at them. If you only include waves that didn’t pull back 50%, then there were 3 more. Still, impressive.
Plus, since the wave following the 4-4 wave did not pull back 50%, the continuation of that first impulse was all one wave, by definition.
Let’s look closer at HOW crude moved through 2016
Throughout the year, it respected the 61.8% pullback of every up move.
In this context, the current wave looks like the beginning of a completion wave for the whole year.
The current area is the last stand for bears. If it turned down here, the orange line could be defined as a larger scale shoulder.
But the fact that all significant down trend levels have been broken to the upside makes the continuation up more likely now, imo. (Not without a pullback first.)
The plays from here are:
- On a shorter scale, look for a down impulse, to play the correction of this up wave.
- On a bigger time frame, look for logical pullbacks on this up wave, to take longs.
Everything moves in similar sized waves, until it doesn’t.
When price breaks out, up or down, it can flow in one continuous direction for a long ways, in “price discovery mode.” That is known as a “breakout.”
This ends up being part of a bigger wave, on a bigger time frame, of course. But in the moment (the “moment” lasting days, weeks, or months) experientially it’s like an avalanche. Like a wave at Mavericks, when you’re used to little lapping wavelets; like a black diamond, when you’re used to a bunny slope.
Is this wave surfable, or is a tsunami?
The question we have before us in oil, is this the beginning of such a wave? And, there is no unsurfable wave in markets….it’s just a trick getting on.
One simple rule (my rule, which I broke) would have saved me a lot of money today. If you are going to trade against the trend, wait for the counter rotation.
This move up has broken through all kinds of technical down levels. There is really nothing left to trade short against. But long without a pullback would be a chase.
(The only down trade left for now is a short for a correction. Possibly at that former breakdown at $49.33. The only way to consider it is to look for a down impulse, get on, and take all logical scales.)
So even though it’s left two gaps below, and all that crazy two way action on news yesterday, which act like anchors, like balls and chains….nevertheless, this wave has mounted all that like Spawn, those chains whipping around like gravity has no effect.
Gaps, amateur or pro?
And I have to say, the move today, mounted on top of a gap, at the very top of the biggest wave length of 2016, seems like an amateur gap. That is a gap that comes at the end of a move, rather than starting one. Amateur gaps usually fill. Pro gaps not necessarily.
And note the ugly knot of action on bullish news yesterday. I tried to long that mid. It broke by 12 cents. I got shaken out. Then the continuation of the news happened today, instead of on the news day itself.
None of this is an excuse for bad intraday trading.
Rule 1: price opens above yd range on a big gap, gap and go is more likely than gap fill.
Rule 2: trading against a trend, wait for the counter rotation.
61.8% of down move
Trading against the 61.8% level, with no counter rotation to confirm, is not the stupidest thing in the world. Holding as volume builds above that level, is.
All this said, none of it invalidates the thesis mentioned in earlier blogs. Namely, that this whole move could have been driven intentionally through technical down levels, to prove oil strength, by big traders funded by Russia and SA.
That could be true, or not. It doesn’t matter, in the sense that the up move has now done its job. The down trend is broken in all significant ways.
The dollar puzzle
Also, it has been my own theory that the dollar is the driver of oil, and I failed to notice the dollar breakdown on Tuesday.
Note the inverse action of the dollar to oil. The dollar started moving up 1 month before oil turned down. But since then, the correlation has gotten even tighter.
The dollar temporarily topped 7-25, and slid to a corrective low on 8-2, 1 day before oil turned up! The dollar bounced to a local high on 8/5-8-9. Oil corrected down on 8-10.
The dollar started moving down again on 8-10, and has slid since. Oil resumed up on 8-11.
Bigger picture $
However, in a bigger picture, the dollar move is nothing. It’s still stuck in the range of the last two years. It’s now moved in to the lower half of that range, but that’s not very significant on a larger time frame.
The dollar still has the look of a large time frame bull flag.
Now that this wave is bigger, for its tempo, than any other in 2016, its time to zoom out, and look beyond this year.
Let’s look at all the action since the breakdown in Oct 2014.
On a larger time frame, I’ve marked the primary impulse waves in purple, and the corrective waves in pink.
Remember (note to self) the way waves typically work is:
- Impulse, consolidation, continuation
- Correction, which comes in two little waves
If the continuation is big enough, it’s a new impulse, which itself should consolidate, and complete.
We can also look at the entire move down from Oct 2014 to Feb 2016 as a single wave down, since none of the correction waves ever reached even 50% of the original down wave.
50% of the entire down wave now stands at $70.
The move off the bottom in Feb 2016 is corrective on a very large time frame. But notice that its $22 wave length is considerably bigger than any other corrective wave since the original breakdown. So now it has become a legitimate counter impulse, and “should” want to complete.
Targets above, in current contract adjusted price, are
- The $55 breakdown it never retested.
- The major over-under line at $60
$60 might be a good guess about where we are headed, since the first wave off the bottom was $22. This new wave started at $40.
Another way to look at the picture that could be forming in the oil chart is as a big rounded bottom. If it rose to $70, it would form a nice cup. Then it might be expected to fall part way back, to form the handle (which is a correction, not to exceed 50%, or 61.8% at most) then the cup becomes a base for an up move.
The cup and handle pattern is William O Neil’s favorite. I guess he invented the term. For him it was always a pause in an uptrend, and he wanted to get on board. But he was trading during the 30 year bull market starting in 1970. So up trends were the most likely thing.
But the cup phenomena is the same at a bottom. Touching the rim of the cup is a large time frame engulfment of the down move. The up move cancels the down move. Up becomes the new direction.
$ and oil bigger picture
The fact that this move up is happening inside of the 2016, and price was loose through the year, not tightly coiled, still makes the probability that this is a huge breakout that will run to $100, right now, unlikely.
Not unless the dollar breaks down. But why would it? The Fed is still talking about possibly raising rates. Certainly not cutting them. No talk of more QE. All while the EU and GB are still working to weaken their currencies. Japan’s economic report today was weak…more motivation for them to try revisit weakening the yen.
So time will tell when the bigger up move will start. But on my scale, $10 in oil is still a big move.
Further notes, ACCUMULATION
Today’s giant follow through happened on low relative volume, but not by a lot. 422k contracts today vs 630k on the day that started the move. The correction day almost equaled the volume of the day that started the move. So, on this last leg up, the energy behind it is fading.
And it is on the low end for daily volume during the year. And I’m not sure how much we can read in to this.
But! Looking at weekly volume, the buy volume all through 2016 has FAR exceeded all the sell volume as price slid in 2014.
What could this mean?
The time frame of the buyers here might be MUCH bigger than previously estimated. This could be accumulation on the scale of millions of contracts, with a time horizon of a year or more.
It could be a combination of actual companies, who are redeeming the contracts for oil, and hedge funds that hold 100k + contracts.
100k contracts moves $10 million per dollar. So if they are averaging in, say, trying to average $40, for a double, that would be a $400m play. Easily within the scope of some hedge funds, or investment banks.
Their size could even be bigger. And their risk relatively nill, if they can afford to be down $1billion. And they are betting on one simple idea: that oil will SOMEDAY be worth $80-100 again.
They can even write down the losses against other gains, as they roll their contracts forward, while they wait for the play to pay off, with no real time horizon.
The question you gotta ask yourself is, did you get the right movie? Are you sure this is Every Which Way But Loose, and not The Gauntlet, For a Few Dollars More, or worse yet, Pale Rider, Unforgiven or Gran Torino? Probabilistically speaking, what are your chances that this is a comedy?
At least, most likely, it IS a movie. And, btw, you’re looking at “characters.” Isn’t that tantamount to looking at the finger instead of the moon? In real life, I’m a director. I look at the whole sweep. Don’t get lost in the action, or the story.
Bigger Waves and the dollar puzzle
The strength of the dollar is still a puzzle, in the context of my theory, that it’s the driver of oil, and commodities.
One thing it would be foolish not to acknowledge was the unsynchronized relationship between the dollar slide from 2002-2008. That slide did preceded a HUGE spike in oil. But it proceeded it by years.
My hypos today
Poor little hypos. There there.
8-18-16 crude hypos
(levels moved in adjusted contracts)
48.20 is now the 61.8
Hypo 1: we fall from there today
Hypo 2: we balance today
hypo z: another up day
Opening here is a gap up, if we do open here (we do)
gap up after 5 big green up candles, reversal likely
open with 28 cent gap, at $47.87…30 cents below short target