In this morning’s watch list for Swing Trader’s Insight I suggested we look to short June crude oil futures on a break below the Wednesday low of 50.50. Crude consolidated after Wednesday’s big selloff; the resulting breakout setup gave a good opportunity this morning.
It’s been a rough week for commodities as money has poured out of the reflation trade, and macro traders who earlier this year couldn’t sell enough US 10 years at 2.5% now couldn’t buy enough at 2.2%. Crude fell sharply on Wednesday and then steadied on Thursday as the stock market rallied.
The range contraction (Thursday range was 34% of Wednesday) and directionless trade of Thursday gave crude the setup for a breakout move on Friday – a strong move in one direction as the market made another trending move. Given the longer term down trend and the sell signal in ROC (see chart above), a selloff was more likely, and had good odds of occurring.
So in this morning’s STI watch list I suggested we look to go short if June crude broke below the Thursday low of 50.50 – a move which would confirm the market was beginning to move in the anticipated direction. I usually use stops to enter these trades- in this case, a sell stop a few ticks under 50.50.
The market first broke 50.50 (and triggered our short entry) at 8:30 AM CT. The initial stop loss could have gone either above the morning double top at 50.72 (an initial risk of about $250) or the session high of 50.93 (initial risk of $460). Crude traded sideways for an hour, then started to sell off around 9:30 AM when the stock market began to erode.
Crude continued to sell off over the morning, gaining momentum as it broke below $50. By 10:15 it made the session low of 49.46, and a double bottom / higher low 20 minutes later was a cue to cover shorts. If you did cover, I might consider to resell if the low is taken out, as breakout days tend to continue trending lower, especially if stocks stay weak.
Essential Guide for Futures Swing Trading
In this guide, experienced trader and broker Scott Hoffman explains the trading methods he uses to analyze and trade the futures markets and to publish his trade advisory, Swing Trader’s Insight.
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