As of the close today our four open trades continue to trundle along. The only instrument out of the five we keep an eye on that has so far resisted our charms and remained on the sidelines is oil.
Let’s take a look at this slippery character…
Oil: UP= UCO, DOWN = SCO
UCO is the ETF (exchange traded fund) representing the up movement of oil. That sounds a little alien doesn’t it?
Our chart tells us that based on the definition of trend we have been working on, it is down. The 21 EMA (exponential moving average), the blue line is below the 55 EMA (green). This represents our set up. Our process sees us trading with the trend which means we should be trading with the down trend. Our triggers, price/and or the 8 EMA (red) have crossed above the blue line signalling a buy. The downtrend precludes that, except, for our exception rule.
That is if our ROC (purple line in the upper panel) is above the 0-line in that panel at the time of the trigger – or within three days – we can go.
That just leaves one consideration: resistance is too close to our trade. The trade cannot become risk free before risking bouncing back down from the resistance area. The resistance area is formed by the falling window ( as the Japanese Candle chartists call it) to the left. Our final consideration is a CLOSE above the $32 level. Once that CLOSE occurs, we will place a stop buy just above the high of the candle that does the closing.
Who knows maybe Oil will be back in the game by the end of the week. We shall sit on our hands until all the conditions of our process are met.
Let’s also take a look this evening at the S&P 500…
S&P 500: UP = SSO, DOWN = SDS
I wanted to show this chart for a couple reasons. We are in this trade. The trailing stop has followed the price up like the faithful Sherpa it is and we are at the point that even if the price were to fall off a cliff, we would be stopped out with a small profit. It is a beautiful thing to be risk free.
So why the long face, Seabiscuit?
The vertical line shows us that the recent high in price is not matched by the high in the ROC in the upper panel. The ROC is a measure of the energy driving the price and when the two are at odds, I consider it a warning. That doesn’t mean that the ROC can’t go back to its usual relationship with the price , but we would be foolish not to take action. Even though the trade is risk free, if we can save some of our profit – we will.
My first step when faced with this particular warning is to put a trend line on the chart. If the price closes below that trend, I then place a stop-sell just below the low of the candle that closed below the trend line.
I like trend line fans. Sometimes the price pulls away from the first trend line enough that it is necessary to draw another one from a point such as the one I have used in the chart above.
We are prepared. We will be patient and wait for the actual signal to place our stop-loss a little closer (i.e. just below the trend line).
If and when this happens I will display this chart again because it is an important point you need to get.
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