Wednesday, February 28, 2007

Crude Oil: Still Bullish




One of the positions I feel comfortable holding right now is Crude oil. I've been bullish on this market since mid January and I continue to be bullish on oil.

If you look at the above daily chart of the oil ETF (USO), you can see a 1-2-3 formation which I consider bullish. Just trading this 1-2-3 pattern all by itself sometimes can be profitable and at other times it's meaningless. However, when you combine this pattern with another trading tool, the odds of a successful trade increase dramatically.

I'd like to digress for a second here. Sometimes I'll show a chart with a technical tool that is giving for example a sell signal. In addition to this sell signal I'll also show other trading tools that are giving the same indication in terms of direction.. So what I'm trying to say is, I never reach an opinion based on just one indicator. I ALWAYS combine my different analytical methods looking for even more confirmation before I post my opinions on this blog.

What bothers me is that I'll see another blogger read my comments, and then test just one of my trading tools by itself and reach the conclusion that it doesn't work. First of all, its very difficult to quantify price patterns (head and shoulders, oscillator divergence etc) and second of all you're just testing one method out of context. Try testing that price pattern with the other technical tools I am using at the time of the forecast. So if you decide to test the validity of the 1-2-3 pattern in crude oil that I commented about in the above paragraph, make sure you combine it with the other tools I am about to discuss.

I just had to get that off my chest because there is one blogger who cannot come up with original material for his blog so he reads other blogs and then spends his time and energy with faulty testing trying to show why the method doesn't work and then he actually spends time writing about it on his blog. My advice to him is to come up with his own orignal material. Anyway...lets continue

In addition to the 1-2-3 pattern I just spoke about, there is a very strong seasonal tendency for crude oil to rally this time of year. March through early May is when crude oil tends to move higher as you can see in the above 23 year seasonal chart of oil. I think by combining the 1-2-3 pattern at a time of seasonal strength, the odds increase that oil should rally now.

I didn't show a chart of the commercial activity but the commercial traders have been buying recently so I'm going to stay long oil with my maximum protective stop below point 3.

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