Trading oil’s slippery slope

I love trading. And let me tell you folks, WTI oil is a traders dream. I’ve already traded oil twice over the past 10 months-and things are looking up for a 3rd trade. Please bear in mind that oil is not an investors friend right now. There is no trend – it’s in a basing process. Either trade it – or avoid it. This game is not for the meek.  Understand that there is plenty of risk on this trade, but also plenty of reward for those who trade with discipline.  With that in mind, lets get right down to my current trading plan for energy

The chart below shows us support / resistance lines since 2009. They are playing out perfectly. Pay attention to them – you want to watch for a bounce off of those lines, in conjunction with the momentum indicators noted hooking up.

oil short

 

For your interest, there are many ways to trade oil – my instrument of choice is through the crude oil commodity ETF’s. I am not interested in energy equities. They are for investors–I am trading, not investing here. The other thing to note is that not all oil ETF’s are the same. Some mimick shorter termed futures contracts. USO (US) is one such ETF. Some trade off of longer contracts such as the Horizons winter contract ETF (HUC- TSX). USO will move quickly with oil prices. HUC will lag a bit. Because I’m in short termed trading mode, i have opted for USO as my instrument of choice. Here are the signals I am watching to enter oil:

A brief trading plan for oil

-Support off of $45 or $38 (those are approximate support prices–give yourself a dollar discrepancy around them)

-Bounce for minimum (!) 3 days and 3% price change off of those support levels

-Stochastics hook up

-RSI hook up

-MACD hook up

 

Trade out of the position upon a failure to break the resistance line above your entry point (wait 3 days upon a failure–or just sell if it hits resistance if you just wish to take your money and run). Resistance will be prior support points at: $45, $55, $62. These are approximate price levels to target AFTER a successful bounce off of the above noted support points.

Finally. if you buy at – say $46 or $47 (off of a bounce from $44-45), and that fails, wait 3 days for a break of $45 before selling. On day 4, if the price remains much below $45, sell. Expect a new support level of $38.

 

Thats about it folks. I’m watching this trade like a hawk. The above factors are what I am watching for. You can do the same. And remember, this trade is not for the meek and mild. There are plenty of moving parts at work in oil politics-factors that can ruin a good trade quickly. But that uncertainty has provided you and I with the potential for some profitable trading.

 

Be careful out there!

10 Comments

  • Keith, I am currently short oil via DWTI (3 x inverse) do you have a plan to trade further down side to $38.00 or possible $33.00 before going long?

    Reply
    • $44 broke last week, but seems to be trying to hold again today (Monday)–if it cant hold– I expect $38 as next target per my blog
      At that time IF and ONLY IF it holds above $38 for several days, I would buy oil. Still in wait and see mode.

      Reply
  • Apples stock and it’s associated chip suppliers looks broken now. Not a good sign for the market overall as it stock is such a big weighting of the market and is a market darling stock.

    Reply
  • Hi Keith
    Always enjoy your blogs! Your recent oil blog came to mind this morning when I was looking at XME. I recall you did a metals/mining blog back in April using $SPTGM. Anyway, XME looks now like it may be in the early stages of forming a base at $19-20 since late-July – with a slight bounce and return for about 4 days. This puts it at or very near the 2009 low, so I wonder if it is searching for support there. Failing that, there is the 2008 low of $16-ish. When I look at your 5 bullets above under “A brief trading plan for oil”, I note that in the case of your last three bulleted requirements for a trade, XME’s technicals on these seem to be positive. From a contrarian perspective, sentiment is another factor worth considering. Seasonally speaking, this sector is still about 3 months early.

    I am sure there is a TON of stuff I’m missing here; as you know, I am an amateur at this stuff, but would be interested in any update in your views on the metals/mining sector if you are “scanning” the environment for future blog topics! Best regards,

    Peter

    Reply
    • That’s a great idea Peter–I will cover the metals shortly–thanks

      Reply
  • Keith, thanks a lot for this very timely trading plan!
    You were ABSOLUTELY right in forecasting a possible rebound in oil price.
    I very much value your insights and advice!

    Reply
  • Hi ,
    I still don’t understand how oil etf works what I see right now is the price of hou.to around 3 $ & if I wait 4 years & this oil etf grows to 100 $ & I sell it at that time did I gain the difference or not if not then how it works .
    Thank you

    Reply
    • Saquib
      Please see this blog: https://www.valuetrend.ca/hedging-in-a-bear-market/

      I covered the Horizons single inverse ETF on that blog. Although it applies to a single (not leveraged) short ETF, the example I give from Wikipedia’s description regarding the effects of daily re-balancing is still applicable. In fact, with a leveraged ETF like HOU you have double the effect of that daily reset feature. In other words, the longer you stay in the position, the more exposed you are to a day where the market moves aggressively the wrong way. For example–Monday and Tuesday of this week oil got hammered –it was down almost 11% . That would have a big effect on what it takes to get back to break even if you owned the double long HOU ETF given the daily reset feature of that fund.

      Reply
      • Thank you
        Please can you suggest me how I invest in oil as in company or in etf’s or any other way in the longer term & get benefited from when oil hit 100$ .

        Thank you

        Reply
        • There are oil ETF’s that trade the commodity–Horizons non leveraged NYMEX crude ticker is HUC
          The biggest commodity oil ETF trades on the US exchange–ticker is USO

          Oil stock ETF’s are plentiful. Check out the websites for BMO and iShares to see which suits your needs.

          Reply

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