Turning Tide

Crude 8-17-16 Hypos

And action, on oil news day

Some friends said I wasn’t clear enough on how I make my hypos.  So here is today in greater detail. 

However, I don’t intend to post hypos daily in this detail.  This is simply my process.

If someone wants daily instruction on how to formulate hypos, FT71’s daily Trader Bite is the place to go.


Premarket Overview

A picture of the premarket posture of oil, relative to YD (yesterday)

8-17-16 open

Observations

We are inside of yesterday’s (YD) range, at the top.

Likely to open near Yd close, about $1 away from $47.63, 61.8% fib, above.

It seems to me oil wants to test that level, now that it’s gotten through the 50% at $46.04.

Here is my complete markup

8-17-16 complete markup

You can see in this what I am looking at.  The blob of price yesterday got above the important green 50% level, and above that purple down trend line, and set up camp there.

So although this is bullish, it also seems that this move is over extended, and there is a gap below, which is a magnet.

We are sitting right on top of 4 big up days.  Never in 2016 have we had 5 in a row.  There were a couple of times with more than 4 up days, but they had a day or two of sideways balance in the middle, which we haven’t had in this move.

Here is a picture comparing the size and pace of the current up move to all other up moves in 2016. 

8-17-16 up size and pace comp

The grey box at the end shows how far we have gone, and at what pace.  The only other up move that got this far this fast was the one that opened the year.  And it got exactly this far, and no farther.

There were a couple of others that went farther, but not at this pace.  So you can see the completion up on those bigger moves happened after some sideways consolidation.

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Hypos

Hypo 1: if oil can move up from open, out of YD range, in the first hour, before the news release, I think we get a pop to $47.63 on news, then reversal, and fall.  Target would be about $45, in the day session.  $44.50 overnight (gap fill.)

Hypo 1a: A pop to $47.22, and reverse, since there is a composite LVN (Low Volume Node) at that level.  If that happens, we could move down for a couple of days, then continue up to fill in the LVN next week, and finally get the $47.62 then.

8-17-16 LVN

Hypo 2: If we chop for the first hour, and stay within YD range, I think the move on news might be up, without a fakeout.  It seems hard for the fake out reversal move to be bigger than $1….although the one on 8-10 exceed $1.  And starting within range puts us more than $1 away from logical pivots above.

 

Hypo 3: we get one of the rare non trend news days, in which we get a move up, it gets taken back, but we don’t trend in the direction of the reversal.


Action

30 min in, boxy ON (overnight) profile, poor ON high and low.  A two sided news release could clean both up, with a pop through one side and reversal.

10 am, looks like hypo 3.  Rare chop day on news.  News bullish.  Pop out of YD and ON ranges, rejection back in, through mid of up move.  The mid long didn’t work.  Neither did the reverse short.

80% rule says failure back in to range should retrace range.  Unless that happens in the last hour, then this is one of the 20% days it doesn’t happen.

We may end the day with something like a doji.

FOMC meeting at 11 am pst, 30 min before oil close, could change things.

The top in oil missed the two main logical pivot points, $47.22 LVN, and $47.60 61.8% level.

If we can move up out of this by end of day, or overnight, the fact that we fell and traded so much volume in the sticky area of $46-$46.60 adds weight to pull price down from a good short entry point.

Ideally, we’d see the close more than 30 cents below the top today.  That would lend extra weight to the tide turning, swing short idea.

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Finish

In the end, oil did move above the high of the day, and finished in the top 30 cents of the day.

8-17-16 close

So that does give us a green hammer candle. 

8-17-16 daily hammer

But having lived through it, I know that tail is all full of volume.  There’s junk in the trunk.  If you just looked at as a daily candle, you wouldn’t see that.  That will act like an anchor, a drag on the move higher.

Even though price makes a green hammer candle, which points up, a green hammer at the top of five straight up days does not have the same significance as one at the bottom of a move.

It does suggest price will drift higher overnight.  Which makes sense, since today’s high did not reach a logical pivot point.

Those logical levels are $47.25 ish, the composite LVN (low volume node), and $47.62, 61.8% of the down move.

I suspect it will fall from somewhere in that range, either reaching it overnight, or tomorrow morning, or both, and then making at least a correction day or two.

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