While not exactly earth shattering news today, more than a few people are commenting on the $1.50 to $2.00 move in Crude Oil today. Perhaps it is due to the rather boring movement across markets of all shapes and sizes… and any sort of spike, no matter how small is news worthy. Or perhaps it is the corresponding news that Islamic militants have taken a 2nd Iraqi city in as many days.
But from our seat, knowing how algorithmic models working on commodity markets such as Crude Oil work, the move today likely means Long Crude Oil positions coming to an account statement near you soon.
You see, while the talking heads will be arguing what the move means for the US military in Iraq, for inflation fears, and what not. The technicians, or quants as they preferred to be called these days, aren’t looking at the news. They’re looking at the technicals, and seeing the following:
1. Crude breaking above a triple top at the 105 level
2. Crude breaking above the 20 day high (a common level for Donchian Breakout systems)
3. The 200d Rate of Change about to move into positive territory.
4. Crude breaking above it’s upper Bollinger Band, a classic trend following entry signal
5. Crude Breaking out of its 2014 consolidation pennant pattern
Here’s our best J.C. Parets impersonation on the Crude chart, where you can see all of these items playing out today (if Crude closes up above there around 106).
(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Stock Charts
This tells us you’ll be seeing some managed futures programs get in line with the nascent trend over the next few days, if they aren’t already… From there, it will be a race against a sell off, with the models needing enough of an up move to push their exits, usually some moving average of prices, above the entry price. A 3 to 6 week move upwards towards 115 to 120 ought to do it. And if it doesn’t happen, the good news is the consolidation pattern so far this year likely has the risk rather low, with most likely risking a close down below 100 to 102 or so.
Also see:
Anatomy of a Trend Following Breakout – Crude Oil
Crude Trends and Cursing your Manager
Anatomy of a Trend Following Trade – the Short Side
Anatomy of a Trend Following Trade – the Short Exit
Anatomy of a Trend Following Trade – the Journey