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Published 6/21/16 10:42 am central:
As we know we have been seeing quite the run up in the WTI Crude market since the lows we started 2016. Now that we have traded back up to $50+, we saw some selling pressure come in last week that moved crude back into some weekly support. Many have said this is due to Brexit/Dollar concerns and now that potentially may not happen we have seen Crude rally back up.
I follow many markets outside of my daily ES updates. Crude being a strong one I watch, and using spread trades on this market is a great way to play longer term moves in my opinion. I also do this on grain markets too. If this is a new concept to you. Please contact me
There are still many out there who feel that the massive supply gut is not being factored into the markets and that there is still a real concern about a storage crisis that could potentially cause us to significantly sell off. Also, adding to the bear camp, as we start getting into higher prices we could see more rigs and pumping starting to take place again, to help the cash flows of these already hurting producers. I am not saying all of this can happen or will play out but these are some potential fundamental views that could support a bearish outlook.
Many commercials and large speculators often trade crude calendar spreads. There are many benefits to trading spreads and if you are not familiar, I would be happy to discuss with you directly. In a nutshell, they reduce margins associated with the position and can remove some of the daily volatility of just being long or short a flat priced futures contract. By being long/short one month and then the opposite of a further out month, it does remove some volatility and allows you to play a longer term trend. Keep in mind, future spreads do have volatility too. We are looking at Dec16 spread vs Dec17 spread as this is a popular spread as it is essentially play 2016 end of year prices versus 2017 end of year prices.
From a purely technical standpoint, and that is what I put together with my MDA charts, we are seeing a Sell zone line up on the Daily Time Frame. We are approaching a bottom sell zone, TAS navigator is flipping to Red, and we just recently have broken the current trend line. Lastly looking at the Seasonal Algo historical price pattern averages of this contract you see that the 2nd half of the year we typically have downward pressure on this spread. This could be due to summer seasonal builds and draws from inventory.
Selling the Dec16/Dec17 Crude Spread – Market Last traded @ -1.38
Entry: @-1.49 on a stop (this is selling the dec16 crude Futures and buying the dec17 crude futures at a difference of -1.49)
Margin: $980 per contract
Risk: If filled place stop above Top Zone @ .98 (risking 51 cents or $510 per spread)
Target: Looking to challenge the -3.00 price level and lower
Click Image for larger New Window:
MDA SnapShot Chart: Daily Chart Dec16/Dec17 WTI Crude Spread = Blank
MDA SnapShot Chart: Daily Chart Dec16/Dec17 WTI Crude Spread = With MDA Notes
Seasonal Algo Historical Price Pattern:
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STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
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