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Don’t Be Crude When Doing Trade Prep, BE PREPARED! (A Primer On Price Confluence With Crude Oil Futures (CL #F continuous contract)

 

 

 

 

 

 

 

 

Crude Oil Barrel

 

 

 

 

Here is the latest update on progress of The Buffalo Trader blog redesign:

1) I now have real-time data for looking at intraday patterns using Ensign for calculating Fibonacci Patterns and price retracement and confluence work. The server is delaying some of that data, so I will have to wait to have up-to-date real time data, but it will be coming. At least now I can do analysis on weekends of the markets you want to see (forex, futures, and stocks). As this thing expands, more will be added to that.

2) I have the real-time end of day quotes running, and I am in the process of rebuilding the scans. Right after that, I will have the neural net platform (NeuroShell Professional Day Trader Power User, from Ward Systems Group.) up and running.

3) After that, I will begin the complete redesign of the blog as a magazine-style authority site. It will look empty at first, but I will be in the active process of finding guest content providers, adding my own content, including scans (though I may only do them on a once weekly basis to reveal the most interesting sectors and stocks I find within them), and building out the information infrastructure (which will include an e-mail pop-up page from which I want to obtain emails from interested readers who want a good e-mail newsletter (on a monthly basis at first, but eventually, a bi-weekly one) that covers information about trading that they want to see. Now, I have noticed over the last few days that you folks are slacking up on giving me suggestions on the kind of things you want to see in my blog. I promise you, I am not psychic, so I need your input to make this the best trader resource site you can find anywhere. Give me your suggestions by sending me an email to buffalotrader100@gmail.com. At some point in the future, I will have dedicated email servers, but this will have to do for now.  I am massively busy trading, running other business, and basically getting life going while building this new site. If I can write, then YOU can write me about what you want. You ARE after all, the customer, right?

LETS GET DOWN TO BUSINESS NOW. One of the things I think The Buffalo Trader can do is reinforce some basics of price analysis and technical analysis that you NEED to have in your tool box to make better decisions. You will NOT always make PERFECT decisions when it comes to price, but you will know what to do if you are not, as long as you understand how to figure out price objectives. Since we are trying to be current and cogent to real market events. I have selected NYMEX Crude Oil Futures (CL #F, the continuous contract for NYMEX Crude Oil). I am using the DAILY CHART though February 3. 2015 (yeah, I know its not current as of today, but there is a method to my madness).  Many out there are wondering where the ultimiate low is on a daily basis (as well as a weekly and monthly basis, but I will stop short at daily for purposes of demonstration).

Note that on that chart above, you will see clusters of line that intersect with the 0.618, 0.786, or 0.50 retracement areas and other 1.272 and 1.618 extensions of other price action above the varoius momentum highs. If you see two of those lines in close proximity, there is considered loose configuration in those prices. Price action may rest there after a rally from those lows shown in red. If you see 3, you are looking at probably higher than a 50% chance of at least minor price resistance after a rally, and if you see 3 or more (typically 4 is quite strong) you will likely find major price resistance should a rally from those lows gather momentum. Take a look at this marked up chart around those price levels. Given that criteria, there are minor price confluence areas around $53.70,$84.00, and $95.20/barrel, and major price confluence areas at $63.60, $69.30, and $75.60/barrel. That also tends to make sense, as those various major confluence zones surround the significant 0.618 retracement level of the entire down move.

What that chart represents is the previous price action of the down trend being revisited frequently at major retracement points and extensions of previous countertrend rallies. To use a hunting analogy (and don’t go bonkers animal rights folks), it is like finding dear tracks in a baited field where salt lick has been laid down in previous days and months. The deer (traders in this case) tend to congregate and recongregate along those similar hunting areas (price levels). I have a friend who teaches that trading is equivalent to air war and that your hand should be on the trigger of your howitzer as you fire your bullets that the opposing plane. If you understand the symmetry of markets (even in short rapid time frames), I think trading IS indeed a lot like deer hunting. You set up your stand, you await your target (depending upon whether you are looking for support to go long or resistance to go short), and you strike it when the time and the price are right. Trading doesn’t have to be a random event, as long are you are prepared for the scenarios that will reveal themselves over time to you. If you are prepared, then you can act decisively, like that expert deer hunter, and not fire at anything that moves (like certain ex-Vice Presidents of the US have done lol). If you have a written or properly automated trade plan in place, you can do exactly what you have to do, and no more, to achieve a profit.

If you want to have an idea of the general area that could be the bottom you have a couple of initial choices 1) the “double bottom” low on CL #F that occured at $44.35 to $44.31 and 2) an even lower low should that $44.31 low be taken out. How would you begin to know or be concerned about a lower low occuring (particularly if you had just gotten long at or very near the 44.35 to 44.31 “double bottom” low)? Well, there IS one small exception one could take to the confluence chart I created shown here. Since that low was put in, CL #F has rallied to within (but not yet crossing above) the 61.8% retracement of that second momentum high prior to a major one. IF that 61.8% (o.618) retracement level is NOT taken out, then the odds are greater than 50/50 that a retest of the previous low is at least possible. Had it not retraced above the 38.2% retracement of the last swing prior to the momentum low price, the odds would  become greater than 50% that there will be ANOTHER MOMENTUM LOW equal in price to the high of that bounce swing less the difference between that momentum high price and the momentum low price in the sequence, (the one circled in green in the original chart). If the time up were equally symmetrical to the time down, the odds of that new low would be roughly 75%. In this case, that new low price would be 54.24 (the Feb. 3 high) less (69.54 (Dec 1 high) -44.31) or   $29.01! (That assumes that complete price symmetry holds as it did on the initial down move). It is NOT an absolute, but it is a very distinct possibility).  (How do I know about those probability figures? Over the years using the neural net models, those statistics kept popping up on patterns like those. Similar set-ups, as repeatable as the are across the sequances of market action across history, have amazingly similar results).

Now, its not a bad idea to accept the resonableness of an assumption that prices could vary in the near to intermediate term from $29.01/barrel to as high as $95.20 a barrel in the future? Can such markets like crude oil really be THAT nuts? If you look back at the oil collapses of 1986, 1990 (after Gulf War I), 1999 after the last real oil glut struck the world (and led to $10/barrel crude oil and gas prices under $1.00/gallon), and the oil price collapse of 2008, one can conclude that indeed, this kind of crap almost seems NORMAL! With a narcissistic statist as President and a neo-fascist dual-major-party-led Senate and House of Representatives bent on holding power for its own sense of self-preservation against public pressure (and wanting such “free market” concepts as higher gasoline taxes and the considerence of a trace gas (carbon dioxide) as a pollutant, one should expect both demand and price to fluctuate wildly. As power demands (restricted by fuel source) and supply fluctuate wildly under regulation, it is natural to assume that prices will become unpredictable.  Where Saudi kings and princes wish to slash prices to destroy competition in Russia and the United States (even against their own budget deficits, which are growing), the environment for wild price swings is fertile and will likely get no calmer. Those coal and gas fired electric cars along with the lack of realistic power demand supplied by wind and solar power will virtually guarantee that we will at some point see crude oil and gasoline prices begin to spike as supplies shift and change under central planning.

Traders need to be prepared for those events so even, as the Billy Currington song relates, God is not good (particularly if the God being worshiped agrees with burning military pilots and killing innocent hostages, and the beer is not good (for any reason), the one thing that destinguishes all financial and commodity markets is that PEOPLE ARE CRAZY! They seek irrational means to obtain what look like rational profits, and the majority fail to do that. You, on the other hand, do not have to be like Bill O’Reilly, complaining about evil spculators in markets, as long as you understand the basics of price structure. You would understand that when those evil speculators allow prices to fall as demand parameters wither, they can adjust to those conditions to be short a commodity like crude oil. Suddenly, all that evil speculation pays you AND the financially destitute American family. Lets at least hope the out-of-control political class will at least allow some free market activity. It may be the consumer’s only chance for relief!

Hopefully in the future, we will have a government and an industrial infrastructure and banking system that will support and not thwart the liberties and economic prosperity of the American people. One can only hope. Be ready for the market craziness that is ahead though. Understanding price levels and price confluence will help you do that. Always BE PREPARED!

Here is a little postscript….take a look at this chart, showing the February 4. 2015 bar. Turns out that as of writing this, CL #F had rallied to 50.80, meaning that the low at the 0.618 retracement of that little up move from the end of January HELD! That would set up a potentially symmetrical move back to that lose area of confluence around 56.70. It will be interesting to see how far this rally will take the price of NYMEX Crude Oil. From that low, we have rallied almost 14.7%, and could rally back to almost 27.9% (56.70/44.31 – 1 *100%). That is quite a price fluctuation, and easily explains why the Lundburg Letter is calling for higher gasoline prices very soon.

As always, ladies and gentlemen, thank you for supporting this blog! More good information and research is coming soon.

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