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Aaron Lynch The oil topic has now had time to settle into people’s conscious minds. Most people would be happy for petrol prices to get back down to $1.00 - how our expectations have changed. I won’t attempt to outline the fundamental reasons behind crude oil supply and demand as there are many contributing factors, and to me most of those have not really changed over the last few months.
What I need to set my view on this market is a chart and not much else, for all the hope, fear and expectation of the market players are built into the price action. Since May 20th this year we have seen the market accelerate. To most the pullback represented a good buying opportunity and the bull definitely delivered. Recently we have seen a pullback from the all time highs around $70 back to the $60 mark as I write. This pullback has been quite orderly and there have been some good short selling opportunities by using the 50% danger zones as areas to enter. Many times, too numerous to mention here, the Crude oil market CL-Spot1 has demonstrated as a Gann play. W.D. Gann said knowing this one rule can alone make a fortune.
Chart 1 labels the first range out from the top of $8.30. Using this as a guide for resistance as well as support, the 50% zone would be an area to watch as has been proven many times before. The key here is that the market has managed to push through the 50% point or $66.70, however, in cases like this I use a close filter to ensure the sentiment is there. I need to see the market close for two consecutive days to consider the resistance broken. In the chart you will see that the market could not do this. The times it closed above were points 1 and 2, hence the bearish sentiment remained intact and a strong sell-off ensued.
Chart 1
click chart for more detail
Now having seen this work, you should always have the 50% in mind for the next pullback. The same rule was put to the test only days later where the market tested the 50% point but could not close for two consecutive days. This again was followed by a strong sell-off. It is important to note that patience is a key factor in taking trades like this. If in doubt always rely on a valid ABC point for a confirmed entry.
Chart 2
click chart for more detail
So for many this may signal a sustained bearish run for the Crude Oil contract. My observations are simple; the downside swings are getting smaller in magnitude. This, combined with observation of this market’s performance in the sell-off in April and October of last year, and we may be seeing the bulls warming up to run again.
Good Trading
Aaron Lynch
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