Thursday, September 9, 2010

Flipping from Nuetral/slightly bearish to cautiously bullish

This morning I closed out my iron conrdor in RBOB for a break even trade exactly. As the markets keep challenging overhead resistance levels and set up bullishly over the last few weeks. I have found myself less and less convicted to the downside on RBOB. I made my last short on RBOB yesterday and almost made one more today which would have worked out just fine. But with the positive news hitting the market this week and the bullish formations on the major indexes I had to switch my lean from nuetral/bearish to caustiously bullish...until otherwise proven.
First lets take a look at the /ES:

In the above chart I highlighted in the grey box the bull flag that I see forming. The /ES has been consolidating and digesting its move off of the lows (a 4-5% move) and looks to be setting up for a move higher. The reason I include the S&P 500 into my analysis, is because the correlations between it and the oil commodities have been significant. I actually ran the correlation between RBOB and SPY for the last 100 days and it is sitting at 0.88 (the most correlated of all the oil products).

So until this relationship goes away I will continue to look to the equity markets for clues to the next move in the oil futures that I follow: RBOB, HO, CL.

Now onto RBOB and the trade that I took right before the GLOBEX closed down at 2:15 for its routine 45 min close.

First on the daily chart below you will notice that I drew a trendline from 1.7850 to 1.9680, as RBOB has made a series of higher lows and higher highs...textbook uptrend. In addition to this trend formation it is also forming an ascending triangle which also is bullish. And in case that was not enough it also looks like equities are going to break out to the upside.

So the trade...I set an alert for a RSI cross into oversold conditions on the 15min time frame. Although this did not close in oversold conditions, this is where I decided I wanted to get long. The alert triggered when RBOB traded down to 1.9225 and I immediatly put in a market order to buy 5 contracts and was filled on average at 1.9279. I am looking for a move back to at least the resistance level and maybe even beyond, my entry is right at former resistance that I had used as a pivot for a short the other day which was good for 1ct.

Immediatly after executing I put in a stop at 1.90 as to mee this would tell me that I am completly wrong on this trade and save me from any drastic move in the overnight market. Additionally I put in a few limit orders in case the market got there in the overnight session. I put in a limit to sell 2 @1.94 and 3@ 1.96. I was executed on the 2 @ 1.94 and it is yet to be seen what will happen with the other 3. As I write this RBOB has been as high as 1.9504 in overnight session and is currently trading at 1.9464.

I will update as this trade develops.

Note: I have done a few day trades that I have not posted about as I do the analysis intraday and it seems like a burden to do a post on a trade that I am in for less the a few hours if that.

1 comment:

  1. My orders were taken out overnight. I sold 2 at 1.94 and then 3 at 1.96. This trade made about $5,040.

    It traded as high as 1.9686 where I have resistance drawn. I still think there is a very high probability that this thing breaks resistance. But it is going to need the help of equities to get it done.