I probably sound like a broken record for writing this but I like to trade crude oil futures when the weekly EIA crude oil inventory report is released. It has the potential to cause sudden market move but is often less likely to cause the crazy overshoot reactions of a once a month report.
Today had a Taylor Trading Technique Sell short day signal – Monday was the Buy day, and yesterday was a Sell day / breakout rally. There was no “high violation” as would been seen in a textbook TTT Sell Short day although last week’s swing high at 104.29 was another reference price to watch today.
I drew two Fibonacci retracements to give downside reference prices to watch this morning. With the Taylor Trading Technique I’ve found it’s important to initiate trades only when the market moves in the direction anticipated. Thus a lot of the chart work to do is to find price levels to monitor for confirmation of the anticipated move.
In this case I watched 103.44 as a reference price for continuing an anticipated selloff. It was a 50í retracement of the move from Monday’s low to yesterday’s high, the expectation being that a move below there would confirm that the move was shifting from a correction to a trend change. That’s my own trading guideline, not a “definition” but I find it works well for me.
Additionally I looked at a 50í retracement from last week’s low to yesterday’s high. This was at 102.88, a price level to watch both for a first profit target and as a reference price for evidence as to whether the selloff would continue.
Today’s intraday chart is below. By this morning any good initial short sale signal had come and gone, but the intraday downtrend was still intact and 103.44 was still a valid downside reference price.
Right after the report there was a move to a new daily low at 103.50. This would have been a nasty move if you weren’t trading with a larger picture in mind. This took out the previous morning low by five cents and likely sucked in some eager short sellers. From that low it rallied to 104.11, which likely stopped out a lot of the early sellers.
That rally stalled out and the selloff resumed (note how the moving average, the 20 period EMA of 15 minute bars, contained the rally). The 103.44 level was taken out about 20 minutes later – the trigger for a short sale.
The 102.88 level was hit about 10 minutes later. As this held the first time down, this might have been a good time to take at least partial profits; it was a move of approximately $500 per contract in about 10 minutes.
102.88 was taken out again in another 10 minutes and served as resistance at 10:50 AM. I’d move stops on remaining positions to that area; holding under there could lead to a bigger selloff.
© Scott Hoffman
This originally appeared as a blog post in Scott Hoffman’s Futures Insight Blog.
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