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Aaron Lynch A large part of trading any successful forecast or projection is looking for a signal top or bottom. These signal tops and bottoms come in a variety of patterns. Some of the more common are island reversals and doji candlestick patterns. Any standard technical analysis text will explain the formation of these patterns and they are relatively easy to see in hindsight, however there can be some confusion when trading around contract rollovers. To illustrate this point we can look at a very recent example of signal bottoms in the light sweet crude oil market CL-SPOTV.
The main charts that you will want to look at will be the current month chart. In this case we have just moved from the June contract to the July contract. As a rule we also want to focus primarily on the Spot V chart based on the roll over of volume, however the Spot 1 chart has some benefits as shown in the charts below.
Using the split screen function we can overlay a number of charts in a variety of ways - we have the Spot V chart on top and Spot 1 below. The patterns are somewhat different when compared this way, remembering the only reason behind this is using different charts to construct the continuous chart.
Chart 1
click chart for more detail So how are we going to read these charts? Let's “form read” the two charts and see if it confirms our view on the market. The Spot V chart on top does not signal May 20th as being the lowest point, also there is no gap up confirming a strong move. Whereby the Spot 1 chart clearly signals May 20th as the lowest point, confirmed by the strong gap up the next day, the oil market has continued to move up and extend the swing chart higher.
Chart 2
click chart for more detail The pattern that formed on the bar of May 20th is not a classic reversal pattern as such, however, it did give us a signal that the sentiment is mixed as the close price was very near to the open price after pushing lower throughout the session. Using the two charts we can see a different perspective as to what the market is doing.
There are a variety of time factors that signalled May 20th as a date to watch. There are too many to cover in the scope of this article but I challenge you as traders to look at the market and work out how I calculated this date as one to watch.
The game of trading is one that requires skill and decision making attributes. I never exclude any information at hand and in the case of the futures contracts, looking at both the Spot 1 and Spot V should be a normal part of your routine.
Good Trading
Aaron Lynch
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