XLE Looks Positive - Update 4

XLE Daily

Yesterday I said "If we close above the 8ema tomorrow, then it will look even more like a bobble between MA's." Well, we closed today above 8ema, and about half way up yesterday's candle. So now I expect we'll bobble between the 50sma, which is coincident with the downward Trend Line, and the 8ema, until we break out one way or the other.

If you look at this chart from the swing low at 68.66 forward, then you'll see the downward trending channel we're in, combined with the upward trending channel that precedes it, form a Flag pattern. The expected breakout from the downward channel is to the upside, which would continue the general uptrend you'd see on a higher Time Frame.

The fact that we bounced off the .382 Fibonacci also suggests we're going higher. But trading is a probabilistic enterprise, not a deterministic one, so we'll read the tea leaves the best we can, and remember risk control and capital preservation are the top priorities.

XLE Looks Positive - Update 3

XLE Daily

Today's chart looks worse than it probably is. It did form a red candle with no top wick. But we didn't close below the 8ema.

Yesterday I said "we're right up against the 50sma which could provide resistance, and put us in a bobble between the 8ema and the 50sma". So far, it looks like that's what's happening. If we close above the 8ema tomorrow, then it will look even more like a bobble between MA's.

Certainly there's not enough evidence to exit the trade. Not yet anyway. So we held the position. 

If we close below the 8ema tomorrow, and near the bottom of the day's range, then we'll have to think seriously about getting out. But we may want to wait and see if there's follow through the next day. It'll depend on the actual situation near the Close. For example, if the options have very little value left in them, then it may make more sense to hold on to them for a possible bounce.

XLE Looks Positive - Update 2

XLE Daily

Good news is we may have broke out of the congestion and made a higher high and a higher low than the candles since the recent swing low. We're above all the Moving Averages except for the 50sma. Stochastics are not yet overbought. We're continuing to move away from the .382 rather than retest it again. This is all Bullish and supports our trade.

But on the other hand, we're right up against the 50sma which could provide resistance, and put us in a bobble between the 8ema and the 50sma. We haven't yet broken the downward Trend Line. We haven't formed a Bullish candlestick pattern since the recent swing lows, although we may have formed a Double Bottom. Volume is mediocre. This does not paint a particularly Bullish picture.

Bottom line, its an easy decision to hold the trade.

XLE Looks Positive - Update 1

XLE Daily Chart

Today was a big day for many of the markets, but just noise within the current sideways congestion/consolidation for XLE. We even closed right in the middle of it. A non-material day.

Tomorrow is the trading day before Christmas. I'm told that is an up day about 75% of the time. I'm expecting a reversal in XLE, but not much of a break out from the congestion range.

XLE Looks Positive

XLE Daily

The applicable part of this Daily chart, regarding this trade, begins at the 65.48 low on 7/14/22. If you draw Fibonacci levels from the recent 94.71 swing high on 11/14/22 down to the 65.48 low on 7/14/22, you'll see the current swing low at 82.65 on 12/9/22 is very close to the 38.2% Fib retracement.

Notice the price action from 94.71 to 82.65 is in a AB/CD format. See the 2 little white, downward angled, diagonal lines. And, the 82.88 swing low 2 days ago made a higher low than the 82.65 low.

Also, Stochastics, on the bottom of the chart, are extremely low at the 82.65 low.

A setup like this can lead to a substantial bounce up to the -27.2% Fib extension at 102.64. It would have been better for me to wait until the Close today to see if we close over the 8ema. Its mid-day and we are over the 8ema but I should wait a few more hours. But I'm going to be busy with other trades I have planned near the close, so I'm going to jump the gun, but use options to limit my risk to a defined amount, which is the cost of the options.

So, I got an XLE March 95 Call for 2.22. I picked March to allow enough time for the trade but also to control the Theta time decay. Also, this option has a 30% Delta, which is an inflection point in the Delta vs underlying curve, meaning Delta accelerates its increase from 30% to 70%.

The Target is the -27.2% Fib extension at 102.64. This also coincides with the price swing from 7/14/22 to 8/29/22, as represented by the thick, white, upward angled, line. The next price swing is longer, which doesn't hurt. 

I almost always shade my entries, stops, and targets to account for slippage and bid/ask spreads. So, my actual exit is when XLE is 102.50.

Bullish Jan 2023 Beans - Exit

Jan Soybeans Daily at 13:30 ET

Jan Soybeans 5 minute at 13:30 ET

We have a big grains related report due out this Friday 12/9/22, which means its more likely we'll continue in a sideways consolidation until the report than have a consolidation break out. We're at the 78.6% Fibonacci level as well as previous resistance.

Considering price was over the upper Bollinger Band after a good acceleration on the Daily chart, the 5 minute chart is starting to roll over, and we had a 24% gain in our position, I decided it would be best if I sell now (13:30 ET).

I sent a Tweet at 13:41 ET announcing I sold, which gave anyone following me 40 minutes to take action if they wanted to.

Summary: I exited today even though we haven't reached our target because I think we'll go down to sideways until the report on Friday, with no clue what will happen in response to the report.

Bought: Jan 1450/1460 Call Spread for 5 1/8 on 11/29/22 (5.125 * $50 = $256.25)

Sold today 13:30 ET for 6 3/8

Profit 6 3/8 - 5 1/8 = 1.25 * $50 = $62.50 (62.50/256.25 = 24% gain) 

Bullish Jan 2023 Beans - Update 5

Jan Soybean Daily

Our patience paid off. At least for today. We made a large green candle on respectable volume, but saw some profit taking later in the day. And we made this Bullish move when many markets were red.

We closed above the 8ema and all the Moving Averages we track. Stochastics are still in the mid-range, so no "resistance" from being overbought. 

I was tempted to close out our position with a little profit because there is a big market moving Ag report coming out this Friday 12/9/22 12pm ET. But now the chart is looking Bullish again so it seems premature to exit today when we still have a couple more days.

So, I held our position yet again.

Bullish Jan 2023 Beans - Update 4

Jan Soybeans Daily

Jan Soybeans 5min

As you can see on the 5 minute chart above, we drifted upward overnight until the US Service PMI Report was released at 10am ET. The numbers were hotter than expected, which the market interpreted as more Quantitative Tightening by the Federal Reserve, which tanked almost every market, including Soybeans.

However, at the end of the day, the 5 minute chart shows we formed a double bottom and tried to climb higher into the Close. But the Daily chart above shows we bounced off the 200dma and closed under the 8ema, with Stochastics in the mid-range. It looks like we may just go sideways until this Friday 12/9/22 when there's a big Agricultural report at 12:00pm ET.

Unfortunately, sideways price action actually seems the most likely, given the circumstances. If we accept that, then the question is do we sell and limit our losses, or thanks to our fixed maximum loss due to using an option spread, hold our position through the report?

Let's review our Risk:Reward. Even though the Soybean market is moving its price action dynamically, our Target hasn't changed, so the R:R hasn't changed. Maximum risk is what we paid for the option spread, which is 5 1/8. 

And the maximum gain is the width of the option spread, minus the remaining extrinsic value when we hit the Target. The width is 1460 - 1450 = 10. If we get a huge bullish response from the Report, then we can say the spread should be worth close to the width. If we trim off half a point, maybe we're close to a maximum value. So, 10 - 1/2 = 9 1/2. As you can probably tell, I'm kind of fudging here. I could go through a more complicated and time consuming estimate, but I'd still have to guess the response to the Ag Report, so I think it would be a waste of time to do the more in-depth analysis.

So, say a best case for a bullish report and selling at our soybean price Target rather than holding 

the position longer, our Risk is 5 1/8 points and the Reward is 9 1/2 points. 

If we were to sell at the end of the day today, we'd have taken a loss of 1 point. 

Bottom line, I decided its worth waiting to see what tomorrow's price action looks like.

Bullish Jan 2023 Beans - Update 3

Jan Soybeans Daily

Today's candle combined with yesterday's form a Bullish signal called a Bullish Harami. But to be a confirmed signal needs to close over the 8ema, which it didn't.

If you consider the down angled congestion as a Flag Pattern then we have come back down and bounced off it. This is a very Bullish pattern if it follows through.

So, based on these promising, albeit premature, indications, and the fixed risk, thanks to our Vertical Option Spread, led me to leave the position on over the weekend.

Bullish Jan 2023 Beans - Update 2

Jan Soybeans Daily

Looks bad for our long position, but things are not always as they seem. Today's candle, along with the previous 1 or 2 candles, does not make a candlestick sell pattern.

We've had several similar configurations recently, where it looked like we were about to flush to the downside, but then we bounced back upward. Unfortunately, we had more volume today than we did recently, which suggests it might be different this time.

I had said yesterday I was concerned about the overbought Stochastics. Maybe that plus the fact we're in a consolidation, caused a temporary down leg or two. Notice we didn't close below a down sloped trend line. This might just be a retest to be followed by a resumption of the upward price action.

Fortunately, our risk is fixed by the option Call Spread. So, given all this, I decided to hold the position and give the market an opportunity to reverse back into our favor.