The crude oil futures had a breakout setup for today after two narrow range, directionless sessions. This breakout setup told us to look for a directional move today, which resulted in a down trending market from mid morning on.
When a market has a breakout setup, we look for an initial move beyond nearby support or resistance (trigger levels) to serve as a springboard to a trending move in that direction with the market’s momentum in a positive feedback loop.
For August crude oil, our primary trigger levels were the Friday high of 60.74 and the Friday low of 59.93. There was a small upside move early in the session however it stopped just short of the recent high, forming a double top.
This double top made a downside breakout an attractive looking trade as increasingly lower prices would add to the downside pressure of trapped longs looking to sell out of losing trades. Additionally, a break below the Friday low would mean a move below the natural pivot point of $60.
Friday’s low was taken out around 10:45 AM, which triggered our short sale. As I’ve often said, I like to enter breakout trades using stop orders so I don’t have to be entering trades when the market is already moving strongly. The initial stop loss orders could be placed above the last swing high of 60.34 or just above the previous lows around 60.25.
Crude oil trended lower for the balance of the session, making lower highs and lower lows until a climax move to the session low of 59.39.
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