In Tuesday's blog on crude oil, I was happy to see a strong surge in prices as I wrote:
"...prices shot up to $76.16 today to test the 45-day moving average. We went long in crude on Dec. 14 with the idea that the low on Dec. 13 ($67.98) was the start of a new medium-term cycle (and possibly the start of a new 4-year cycle from the low of $65.24 on May 4). It's been "so far, so good" for this trade, but we still have to see prices close above the 45-day moving average to confirm the new cycle. Today was the first test. Let's see if it can break higher this week."
Well, so far prices have remained below that 45-day moving average, and with today's sharp price drop they are also now back below the 15-day moving average. We recognize that crude oil prices can be especially volatile during times of geopolitical instability - especially in the Middle East - so sharp price swings can be expected. This is why we use cycle studies and technical analysis as our main guidance for trading decisions. Geopolitical events can certainly influence markets, but those influences usually still remain within the broader parameters defined by cycles and technical studies.
With this in mind, there is still good reason to view that Dec. 13 low of $67.98 as the start of a new medium-term cycle in crude. This is because it happened inside two strong reversal zones, one specifically for crude, and another very strong general reversal zone for all markets, and the timing was right for the end of the cycle. It's possible this market could be forming a "double-bottom" to that $67.98 low near the center of our current weak reversal zone ((Dec. 26 - Jan. 4 with several "pivot points" along the way, i.e. next Monday, Tuesday, and especially next Wednesday.-Thursday). If that's the case, we expect prices to stay above or very close to $68. If they start to fall and close below $67.98, we may have to revise our cycle labeling.
Today's prices closed at a "break-even" point in our long trade (which we entered on Dec. 14). Risk adverse traders can set a stop loss for this trade on a close below $70. More risk tolerant traders could lower that to a close below $67.98. We are holding our long position in crude oil for now with these stop loss parameters.