Plans, Crude, 1-1-16, scrap and junk art
Of mice, men and horses
I guess I gotta admit it, I like writing about my big losing days more than the winners. Or maybe it’s just when I have nothing better to do.
A big loss is a sign of a change in context, since it was based on a plan and natural pivot points.
Today is the first time in 2016 that oil has broken a 61.8 fib of an up move. Noteworthy.
However, it is currently leaving a tail below, that level. I got shaken out in that tail, that’s where I took my loss (even with the idea of the “empty trade.” (Discussed below)
But note, that was the first time in the year it even made a tail below that level. And that was no ordinary tail. It was a fat tail. It sat under the critical level all morning, bear flagging while I bled, and finally broke lower, before rebounding exactly on the pit close.
BTW that “open line” is just the place holder for tomorrow.
On the way up, I lost more than once, shorting the major obstacles during the giant up surge, now I lost longing the most major obstacle on the way back down, 61.8% of the giant up move.
The jury is out. If the 61.8 does end up holding, the bias remains up. If not, widening swings.
Oil prices are behaving as if:
- People actually believed on the way up the silly story that SA and Russia were in freeze talks, and Iran would cooperate (or they believed others would believe, and were apparently right.)
- Were actually surprised that Iran would not cooperate (really? Ok. But wow.)
- Actually believe the Fed will raise rates, based on the Jackson Hole comments (not likely, imo)
Lesson: Price trades with perception of news, not contrarians who are actually right. At least up to a point.
Still, I lost money, but not that much face, in my own mind. It was a reasonable risk reward scenario to go long at $43.46 ish. An up move might go$10+.
As price gathered below the significant level all day, it was certainly a clue. Could have saved some money by reducing or stopping out, and waiting for confirmation of the up move.
The irony was, my hypo 1 was correct today, as usual lately. But I started to fight it early, because the dollar became impulsive down. Oil “should” move opposite.
This most likely will result in a pivot up in oil, tomorrow, or soon. But the fact that we’ve broken the significant 61.8 level, takes us all the way back to my “oil bellwether post.” (Unless it ends up not breaking.)
The whole point of all the studies of the dollar and oil correlation, posted elsewhere here, is that the dollar often leads. The dollar got impulsive down today. Oil “should” have gone up….or at least held that 61.8% level.
Nope. But wait…
Still the Noob
As with many noobs, I scrape together profits day in and day out, only to blow a couple of weeks in one day. Still!
Wait a minute now, when does the day actually finish?
I had written part of the above during my loss in the tail. But as the day actually turned out,
The Empty trade
Tim Parker (a genius, look him up on Twitter, Autumnal City) introduced me to the idea of the empty trade. The idea is that, when price is taken below a significant level, all the longs abandon their positions, and people pile on short. The trade is “emptied” of weak hands on the long side, and short stops accumulate above. It’s a recipe for a short squeeze.
However, the caveat is, sometimes a cigar is just a cigar. Sometimes when price breaks below a significant level, it’s because it really means it. Especially when it holds below that level, like today. Ideally, it would have tested down, and rejected back up, quickly. It “should” not have taken all day.
Time will tell if this was the empty trade phenomena. Price did react impulsively off the low (more than a 30 cent rotation) to close above the critical level. It’s true that if it really is long here, that long hold below the key level would certainly have “emptied” the trade of longs, and built a big short position.
Mice, men and horses
So who are the mice and who are the men? And when is it time to get back on the horse? Rhetorical questions we must each ask ourselves. And lest we not forget, enough mice can overwhelm a man or two. But not usually for long, unless it’s the plague or something.
Tomorrow will tell us a lot. A move up from here, and the up bias clings by its finger nails. A move down through this level, and it’s back to day to day hypos.
The big events to watch are the ECB meeting Sept 8. That might well inform the US Fed if it will raise rates Sept 20. If the ECB loosens in any significant way, it’s doubtful the Fed would raise rates, particularly right before elections. In which case, the dollar could continue down or sideways, and oil could lift.
If the Fed really did raise rates, the dollar would likely break out of its coil to the upside (in the bigger picture, that still seems the likely direction). This would surely be bearish for oil and commodities.
Should I hit post 10 minutes before the 3 pm PST open? Right before the punch line? Why not?
For what it’s worth, here were my hypos pre-market. Hypo 1 b was right.
Oil hypos 9-1-16
20 mins before open, oil in gap down posture, underneath yd low, and 50% of up move.
Leaving a lot of gaps on the way down. Move fueled by dollar strength, on speculation fed will raise rates in Sept.
Causing widening swings in oil, since now over 50% of the very large Aug up move is taken back.
Next target 61.8%, $43.46. Also middle fib fan there.
If we open in gap down, assume gap and go.
Hypo 1: down to $43.46
- Halfway fill gap, then down
- Open drive down
Hypo 2: sideways action, with widening swings
- Up in to yd range, fall back out from something like close
- Down first, bounce off random level, like $44, then up to to yd range, fall back out
Hypo 3: up, retrace yd range
- Down first, take out ON low, retrace up and into yd range
- Open drive up
ECB meet Sept 8. US fed meets sept 20.
If ECB loosens further, as speculated, dollar gains more strength, which would incent US Fed not to follow through on raising rates. So the action would be dollar up for a week, then down…oil sideways to down for a week, then up.
ECB meeting is the thing to watch for further clues.