If you missed the first post, here is your second chance to read it. Let’s continue the discussion of convergence lines in context to the trend (since I am still fiddling around with getting the scans going at the moment). Take a look at this chart, which includes the two most recent lower highs prior to the last one on February 2, 2015 for CL #F (the continuous contract of NYMEX crude oil futures prices). That technique is something discussed in an old book (which is quite a good and foundational one about trend lines called “Techniques of a Professional Commodity Chart Analyst, by Arthur Sklarew” . Get it at Amazon, it will be one of the best pennies you have ever spent, particularly if you are a beginner at technical charting.) Mr. Sklarew died 20 years ago, but I think the book is a classic, particularly if you want to understand simple key charting concepts.
There are a few important things I want to point out here, as it looks like we still haven’t quite gotten the bullish case I described in the original post.
1) According to Skarlew’s book, to really get confirmation on a trend line (in this case, the orange line is a downtrend line), you need confirmation by having that line touch a high (and no more than that) 3 times. A good start toward finding one is to connect the previous two higher highs (in a downtrend line) or higher lows (in an uptrend line). If you do that, the odds can increase (based on experience I have had and not on a count provided by a neural net) that your odds of being right on the trend become roughly 7 out of 10, as long as the volume does not reverse on the original trend (which for now is down). The odds of a downtrend go even higher if there is an bearish engulfing candle just before or after a touch of that trend line. We did get close to a touch on the Friday, February 6 rally, but we did not get it. We also got a very modestly bullish candle. If that fails, then we might anticipate a coming bearish candle on volume that might confirm it. We don’t have confirmation as yet.
2) One thing you need to realize also is that if a trend line crosses and touches a Fibonacci retracement or extension level, if that bar does not cross that previous high or that Fibonacci level or trendline, you also have a very high likelihood of a reversal if selling volume confirms the bearish engulfing candle. That too is missing thus far.
The bottom line is this:
If we do not cross that trend line and we get a bearish engulfing pattern on strong selling volume, the odds are getting close to unity for at least a retest of the previous low around that 43.40 level, and that the price of NYMEX crude oil could fall into the $30s/barrel in the near future. It will require some watching, and I will try to keep this discussion going until there isn’t much to discuss.
In other news:
Still working on data issues. I have also noticed that you people stopped emailing me about suggestions for content. Make sure you send me an email to email@example.com and give me your suggestions. I am all ears.
Remember too, that my partner Bruce Linker can help you write your automation code for TradeStation in Easy Language. Get in touch with him here to find out how!
As always, that you for supporting this blog!