Free Commodity Charts

Greetings Traders, welcome to this week's chart lesson!

Crude oil is a hot topic these days. Everyone, both rich and poor, has felt the crunch of high prices at the pumps this past summer, so the twenty-percent drop from the August 2006 highs to current lows was a welcome sign. Now, however, the big question is 'has the price decline ended being a simple correction in a long term bull market? Or is this the start of a major price correction?'

There are a growing number of annalists who feel that a major top in crude oil and related markets is under way. And, these are good arguments because there are a growing number of fundamental facts that support those arguments. For instance, crude oil stocks have risen to an all time high here in the United States due to storage in anticipation of the 2006 hurricane season which was, thankfully, a dud this year. and the fact that all out war in the Middle East looms overhead.

Another fact that adds to the bearish fundamentals is the fact that Americans used less gasoline this year compared to 2004-2005. This hasn't occurred for many years, however, it's not surprising as prices reached three bucks a gallon for cheap unleaded this past summer! 

So, is their a bullish argument for crude? Of course their is and that's the very reason why trying to trade fundamental information leaves traders more confused than sure of themselves. But let's examine them. The oil producing nations (OPEC) are planning future production cuts to lower supplies therefore raising the price. Also, lower pump prices will in no doubt increase demand as traveling picks back up. Also is the fact that the world can either live with a nuclear Iran or stop them. And a military confrontation with Iran would certainly disrupt oil supplies at least temporarily.

So where are crude oil prices headed from here? Good question, and it's one that I certainly cannot answer, and those who try are just full of hot air! I mean, there are both arguable bullish and bearish fundamental evidences. Just do a search for "crude oil fundamentals" in Google and you'll see what I mean. However, a word of caution is advised when reading the search results, meaning, "don't believe anything you read or hear, and only half of what you see". I think it would be a good lesson for you though because you'll see first hand how dangerous taking other's advise can be...my advise included because about two or three weeks from now Google will have this page listed there.

So, what to do? Taking other's advise seems to be a toss of the coin. Ok, so let's consider believing in "only half of what we see". 

Wow, without listening to anyone we traded the 1-2-3 top chart formation that developed in crude this August and made about 12,000 bucks. And we only believed in half of what we saw by placing a stop out order in case we were wrong. In fact, we traded unleaded gas at the same time. You can see the trade results here if you like. But those trades are in the history books and we are only as good as our next trade. So, our work starts over with the question, 'where are prices headed from here?' We've heard from the annalists, now let's let the chart have its say.

Bingo! After making a great profit from the price decline, we didn't have to wait very long before the chart gave us our next trading signal. After trading above the red down trend line which was our signal to exit short trades, the market just went sideways for a bit hinting that the trend may be changing. Then a new number one point for a possible 1-2-3 bottom formation developed last week and a long (buy) signal was generated a few days later when prices traded above the number two point. So, you are long from 62.81 and are currently (as of last Friday's prices) in profits of about three grand! Yikes, now what, It's great that the market has moved in your favor...but what to do now? 

Unfortunately, this is where many traders drop the ball and start seeking other's advice, and as you've seen, there's plenty of it to go around making something more complicated than need be. But wait a minuet, sound/wise advice is what we are supposed to seek when we need answers, even the bible teaches this. 

Well, let's see...who's the wiser here...the annalists or the charts? For me, that's an easy one. I've been seeking the charts advise now for thirty-years and I can say with confidence that with accurate predictable price patterns for nearly one-hundred years, the chart knows much more than I do. So, let's ask the chart and see what it says.

What questions do we ask? Well, we need to know #1 if the trend has indeed changed to up or is this just a price correction (profit taking) in a bearish (down trending) market? #2, we need to know where support and resistance is and move our profit stops there and for points to add additional contracts or options if prices exceed through them or find support from them. #3, We need a longer term profit objective so we are not trading blindly.

Let's look back to the above daily chart of March 2006 Crude Oil. You are already in this trade at 62.81 and have accumulated about three thousand in profits but your stop loss order is still below the #3 point which are the rules for trading the 1-2-3 bottom. This is risking about $1,400 bucks, so from a money management position you should move your stop up to about 63.00 which is a breakeven point for the trade in case prices fall. See, that makes you feel much better knowing that you are protected from a loss and less likely to seek other's advise. (Note: if you didn't have $1,400 to risk on this trade, don't worry, my Low-Risk Option course shows everyone how  they can profit from this move by giving several option positions to use where you can enter this trade for about $400 to $500 bucks with absolutely no additional risk!)

Now with that out of the way we need to know if the trend has changed to up or not. The chart says that when you can draw a trend line by connecting a minimum of three-daily price bar lows without passing through any of them, you then, and only then, project that trend line up higher with confidence that, at minimum, the short term trend has turned up. That's good news because we were able to do that by starting at the #1 bottom point. In fact, we have five days that we connected giving more credit to the charts advise. That is a bit more confidence we needed that we are trading in the right direction.

Now we need advise for moving our profit stops up to lock in more profit, and for possibly adding more contracts to our position. This is where the chart's advise really shines because entering a market is a no-brainier you just follow the chart pattern rules to enter, but it's not how you enter that makes you money, It is how you exit that determines how much money you make. 

The chart's advise is as it's always been, "use my support and resistance points". Ok, that's easy, you can see that the chart shows two resistance points with the current price, as of last Friday, between the two. Now, the chart says to move your profit stops up to first resistance when current prices trade above it on a closing basis, meaning the daily close is above the resistance line. But here we have two resistance lines very close together. The chart's wisdom here reflects back on its historical data base of similar situations and advises you to wait for a closing price above the second resistance point before doing anything. Once, or if,  this occurs add another contract and move all your stops up to the first resistance.

Let's assume that occurs...what's next? Well, as you can see there is very little resistance to use up to the 50% retracement level at 71.13. So the chart is saying that if the two resistance points are cleared there is a good chance that prices will trade to near the 50% level. 

But hey, the chart's historical data base shows over and over again how markets generally retrace 50% of the last major price move! So the 50% level, or just below it, (don't get greedy)  has drew markets like a magnet over the years. Gosh, that's priceless advise! But that doesn't necessarily mean that prices will trade to the 50% level or even beyond the two resistance points for that matter, but the chart's wisdom already has you in a position where you cannot lose if prices do turn south!

I wonder if the chart could share some further wisdom as to where prices could  be headed in the future? Well, it has in the past so let's expand our March Crude Oil chart out to weekly and monthly prices bars where one bar equals one week or one month to see:

Well now, what do we have here? The above weekly chart and the monthly chart below both show a possible Head & Shoulders top formation developing. That is a longer-term bearish sign. We're not to be concerned with our current trade because it's protected and on track to make profits. But if you take into consideration that if our current trade makes it to the 50% level, it would go a long way towards creating the right shoulder of the H&S top on the weekly and monthly charts. 

If that right shoulder forms and weekly prices trade below the neckline at 60.25, a new down trend will be confirmed. And you know, those bearish annalists calling for 30 and 40 bucks per barrel for crude oil might not be too far off. A full 50% retracement or a trade all the way back to the weekly up trend line would still keep the overall trend up.

There you have it. A trade in progress using nothing more than sound wisdom from the chart itself. You know, it's ok to listen to other's advise I suppose, but never take and use other's advise without first checking them out in the charts. If you'll do that, you'll become a much more confident and successful trader.

[A side note] Did you know that $45 dollars a barrel for crude oil translates to about a buck fifteen for unleaded gas! Wow, that would get the demand wheels churning again! 

If you are a new  VTU course member I can assure you that 2007 will be your best opportunity to make your mark in your new business. The Low-Risk Option Alerts, Chart Watch and Trend Tracker charts will keep you aware of every profit opportunity with specific trade instructions. And, you are encouraged to ask me any questions you might have before entering or for managing the trade. My goal is to see you profitable and, that's why my personal coaching is for you.

Remember, believe nothing you hear, and only half of what you see and you'll do fine.

Happy trading,

Archie

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Take care and we'll see you next week.

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