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 April 7, 2004 Commentary
(mid-week edition)-
Today I'm going to show something
quite interesting that has come together in crude oil and the oil sector. A
little while back I saw a setup coming together in the XOI. The index had
pulled back in the form of a really nice ABCD pattern, set up to continue a
solid uptrend. Let's look at a chart, showing the pattern, and how the XOI
responded.
The XOI really blasted off that ABCD pattern.
As an exercise, pull up a chart of this one and put together your own grouping.
You'll be amazed at how tight it is, and how the key numbers fall together. The
question is, what was the 'context' for this potential trade?
I am fresh
with 'context' swimming in my head, as I have been working on Multiple
Timeframes and 'Context' with every waking moment that I am not trading. I
have been giving up sleeping to get this one done and available for the
readers. I will say that it is really going to be a fantastic working manual,
with some of my very best ideas.
Now, back to the XOI. Let's look at
the weekly chart, and see what 'context' we can come up with.
The XOI is right at an all-time high. In
fact, it exceeded the all-time high by just under a point. It then pulled back
and set up this ABCD pattern that we are looking at. The 'context' is sure not
telling me that this is a great spot for a long trade. This is too much of a
'hot-zone'. This may even be an area where I might consider a short trade, if I
had the setup. So, why am I showing this long setup?
I am getting
a sense, based on my market experience (and a chart that I will show in just a
moment) that this one is going 'over the top'. I can't say if I think that it
will be a 'trap the suckers' fake-out, or a true move to significant new highs.
I just think that forming this bullish pattern just under this all time high
doesn't seem right for a major sell.
And I'm bothered that when the XOI broke the
old high it just didn't sell off to any great extent. It then turns around and
forms a classic bullish ABCD pattern, set up to continue the trend. I did not
take this long trade because of the 'context', but it did alert me to what may
be developing in this index. This is the very thing that I cover in great
detail in my new book.
Let's look at the last thing that really has caught my
attention. After the XOI really got going off that ABCD pattern, a pattern
started to form in crude. I'll show the grouping that I built for this
one.
Crude started to form this fantastic ABCD
pattern with a very tight grouping. The grouping has a nice .886 retracement in
there, as well as a significant .618 retracement off that key swing-low. There
are a lot of key numbers in there, all of them falling together very
tightly.
Let's see what happened off this grouping.
Crude just jumped off that area, rising about
three dollars in as many days, closing above a downtrend line drawn over the
last two swing-highs. This whole thing is looking like an upside
blowout.
The key thing here is not whether these bullish setups play out
from a trading standpoint for me, it's whether or not the XOI takes out that
all-time high and starts to go. I'm seeing behavior that I don't expect to see
if the XOI is a major sell near the all-time highs. Combine this with these
bullish setups right under the all-time high, and I'm really watching this
closely. I think this will have implications not only for my immediate trading,
but also for the economy and the market in general.
Perhaps this
will just turn in here and drop like a rock. That's fine, as I don't like to
take bullish trades just under, or at, all-time highs as it is. (This will be
laid out extensively in the new book.) What is key is if the high gets taken
out. And then, what happens from there? It may set up either a long
continuation trade, or a serious sell off after a lot of new longs get trapped.
Regardless, this is a potential 'high action' area.
On a
different note, I am hoping to have the new book to the printer next week. That
may be overly optimistic, but I'm working as hard as I can to get it wrapped
up. I'll comment on the weekend on how likely that is to happen.
Be extra
cautious tomorrow, as it's the last trading day in this holiday-shortened week,
and it could be illiquid. The next commentary will be the weekend edition,
posted on Sunday.
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