XLE Re-entry - Exit

XLE Daily

XLE 3 minute

At 9:34am ET I Tweeted "Sold our long $XLE #XLE position. Details later.". Here are the details:

We opened gapped down, then filled the gap. Then we started back down, as you can see on the 3 minute chart. I have seen, many, many times, when this price action occurs, you get a continuation to the downside. It seemed very likely that we'd drift back down to the Trend Line and reverse back up.

Since we're using options for this trade, we're losing value daily due to Theta time decay. Plus, options are leveraged instruments, so we'll lose value in our position much faster than the underlying ETF. So, why go for that ride down to the Trend Line, and possibly much further down if we don't bounce off of it. Its better to exit now and wait for the reversal off the the Trend Line. That's why I sold the options.

However, look how we closed on the Daily chart. Today's candle combined with yesterday's forms a Piercing Pattern candlestick pattern. This is a Bullish signal, except its usually actionable when Stochastics are oversold. Currently we're barely out of overbought territory, nowhere near being oversold. 

Still, a Piercing Pattern plus a close above the 8ema, and every other Moving Average we track, as well as the recent Bollinger Bands/Keltner Channel Squeeze Breakout, makes me think it would have been better to wait until the end of the day, as I usually do.

I thought about getting back in long at the end of the day, but its bad to get caught in a sideways thrashing price action. So, I decided being out is probably the best choice. There's still plenty of runway to get back in long if we want to when the setup looks worthwhile.

For now, here's trade result:

XLE Mar 95 Call

Bought at 2.55 1/9/23, sold today 1.64, loss -$91. 

Bought at 1.99 1/9/23, sold today 1.64, loss -$35.

Total -$126/454=-28%.

XLE Re-entry - Update 3

XLE Daily

Now the buy/sell/hold decision is getting harder. We had a significant down day on decent volume. Today's and yesterday's candles formed a Left/Right Combo candlestick pattern. Stochastics are still high and there's still a tiny little gap below us. It's not unusual at all for a breakout to do a small reversal and test the breakout level, or in this case, the Trend Line. These can indicate a bearish move of about 3 points or so, down to the Trend Line, which is coincident with the tiny gap.

On the other hand, we found support at the 50sma and 8ema, which happen to be coincident today. This could suggest a reversal tomorrow and continuation with the up trend.

It seems like a 50/50 bet from here. But since we're in an uptrend, and we found support, and not closed below the 8ema, I decided to hold the position.

XLE Re-entry - Update 2

XLE Daily

Well, you can see we had a higher high and higher low today, and we closed above the 3ema. Also, you can see the Bollinger Bands are blossoming outward. These are good bullish indications.

However, we closed near the bottom of the candle, and Stochastics are extremely over bought. Also, we are coming into a previous congestion area from the month of November. These indicate risk of a reversal. If we do reverse, then it'll be a question of how far.

It looks like we might be at an inflection point. We'll probably find out this week. We still have a distance to go to get to our 102.50 Target.

XLE Re-entry - Update 1

XLE Daily

Looking good today! After bobbling between the downward Trend Line and the 50 SMA for a few days, we gapped up at the Open above the 50 SMA and stayed above it all day. We had decent volume, decent size green candle, and looks like we got a Bollinger Band/Keltner Channel squeeze breakout to the upside. We closed above all Moving Averages and closer to the top of the candle than the bottom. All this is bullish.

Unfortunately, we also entered a previous congestion area to the left, and Stochastics are now in the overbought area. We closed a little stretched above the 3 ema and 8 ema. These provide bearish pressures. It would be reasonable to have a pull back and retest the downward Trend Line.

Strangely, while our energy ETF is looking bullish, the Feb. crude oil futures has a bearish setup. I tweeted 15:47 ET today "Oil Futures Mar 4hr showing tweezer top near 78.6% Fib and a Gartley D point.". Initially, this seems like a contradiction, but we're dealing with apples and oranges. The XLE is an ETF constructed by equities, and the CL futures is the actual crude oil commodity itself. So, its perfectly reasonable that these two will sometimes diverge.

CL Mar Oil Futures 4hr Chart

I decided to hold the XLE long position since it appears the bullish indications beat the bearish ones, and we have now resumed the general upward trend.

(We also shorted the March oil futures, but that's a different trade.)

XLE Re-entry

XLE Daily

See my Jan. 3rd post for our exit from the XLE Bullish trade. On Jan 6th, the previous trading day before today, we gapped up and broke through the downward trend line, then closed slightly above it, after rejecting off the 50sma. Breakouts from triangles usually occur near the apex of the triangle, which is exactly where we are.

Today we confirmed the breakout by gapping up again at the open. The scary looking big red candle today is actually exactly what you want, because when price retraces and retests previous resistance it just broke through, then resumes the breakout direction, that is a strong bullish indication. The fact that we gapped up twice in a row makes the retest even more bullish.

However, while we broke through, gapped up, and retested, we haven't yet resumed the breakout direction. We'll be watching to see if that happens. If we continue downward into the big triangle that formed, our situation will be become uncertain.

But we don't want to exit too quickly because there's another gap just below us. Gaps want to be filled in. So we have to be flexible and patient enough to let that gap be filled and price to reverse back upward. We'll just have to deal with the hand we're dealt.

Also, notice the Bollinger Bands came inside the Keltner Channel, forming a BB/KC Squeeze. Today it looks like we're just about to see a BB/KC Squeeze breakout. If we trend higher and get that BB/KC Breakout, we'll be golden. That should give us typically at least 5-7 candles to the upside.

This triangle we just broke out of is a classic bullish continuation pattern with the expectation to continue the trend it interrupted. However, in my experience, and that of others, triangles can be treacherous. Its not uncommon to breakout one way, then retrace through the triangle and hit the Stops that are likely hiding on the other side. Then the bears will enter short and put their Stops above the triangle. Price action continues a bit to attract the bears, then whipsaw back upward and take out the bear's Stops. You'd think ok, if that happens we can get back in long, but often the price returns to the apex and meanders sideways. When this happens, everyone but the dreaded market makers lose money. No fun.

But a triangle is what we have and no telling whether it'll behave as it should or not. So we have to participate as if the breakout will workout well for us, but be ready for the rug to be pulled out from under us.

At 10:13 am ET this morning I Tweeted "Bought XLE Mar 95 Call for 2.55 when XLE was 88.88 due to breakout.".

At 2:45 pm I Tweeted "Bought another XLE Mar 95 Call for 2.00 while price is testing the down trend line.". It was actually 1.99 but 2.00 just seemed more appropriate for the Tweet.

Normally, you don't want to dollar cost average into a losing position. You want to add to your position when its working, not when its not working. However, my intention wasn't to dollar cost average per se. The price action had stalled right on the trend line, which would normally suggest price is about to reject off support and reverse back up. That's what I expected and if I knew this was going to happen I would have entered there rather than 88.88. So its a perfectly good idea to add to one's bullish position at a level where you have good reason to expect support.

XLE Looks Positive - Exit

XLE Daily

Tough decision today. We closed closer to the low than the high, below the 8ema on high volume. We never got over the downward Trend Line, not even on an intraday basis. Stochastics are still above the mid-range, so there's plenty of room to fall further before worrying about being oversold.

But on the other hand, we're still in the congestion area and haven't broken out to the downside. We could easily reverse this price action tomorrow. Plus we're in an option, so our risk is fixed to the cost of the option.

Bottom line, given the relatively larger candle and higher volume, and the clear resistance from the Trend Line and the 50sma, and the priority of capital preservation over "being right", I decided to take a small loss to avoid taking a bigger loss.

Of course, we can always buy back in if appropriate. To that end, I set an alert for when XLE >= $89.

Summary:

XLE Mar 95 Call bought at 2.22 on 12/21/22, sold 1/3/23 for 1.58

158 - 222 = -$64 per contract.

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

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 - 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

Jan 2023 Soybeans Daily Chart

Went long January Soybeans with a Jan 1450/1460 Call Spread for 5 1/8. Multiplier is $50/pt, so cost was 5 1/8 * $50/pt = $256.25. Today's bean close was 1459 1/2, which means our Call spread is very close to 100% intrinsic value. If the futures price stays over 1460, we'll see the valuation of the option spread widen out from 5 1/8 to 10, which would double our investment. It'll widen out because the time value of the long option will wane as we get closer to expiration on 12/23/2022.

See the yellow annotations on the chart above.

Went long because I see:

• Flag pattern break out.
• Scoop pattern about to break out.
• Bollinger Band/Keltner Channel squeeze about to break out.
• Left/Right Combo candlestick pattern.
• Close above the 8ema, with continuation today.
• High up volume.
• Above all Moving Averages.
• No Grain Reports for at least 1 week.

Soon as the order was filled, which was 14:18 ET, 2 minutes before the grain futures market closed, I entered a sell order for 9 3/4.

The expected bullish move of the Jan Soybean futures price is the D point of the AB=CD pattern (see thick yellow angled lines). D can be calculated from 1406.75 + (1469 - 1366.75) = 1509. This is very close to, but just shy of, the previous swing high of 1512.25.

Summary:

Entry: 1459.

Target: 1509.

Stop: not necessary because our risk is fixed and affordable, thanks to the option spread.

Risk: 256.25

Reward: (9 3/4 - 5 1/8) * 50 = 231.25

R:R = 1:1 which doesn't sound great but expect this a high probability setup.

Amazon Bullish Kicker - Exit

AMZN 1 day 14:15 ET

AMZN 3 min 14:15 ET

While I still think we'll get up to at least 109 (top of the gap), I got out today when AMZN was 100.60 (see my 2:19pm ET Tweet) because there is possibly significant resistance at about 100.25 - 100.50 due to:

• Previous double bottom lows at 101.26 and 101.43
• 20 ema
• 100 price round number

Also, its Friday and there are many possible headline risks over the weekend. I think its better to exit with a profit and look to re-enter on a dip.

On the other hand, its possible AMZN will gap up on Monday and run up to the Target, giving no good entry point. If so, then we missed it. So what, there will be plenty of trade opportunities next week. Its better to protect your capital and take a profit, than take a significant risk of a loss when you clearly see possible resistance. Holding over the weekend is very different than monitoring a trade in real time.

Besides, I'd rather be out wishing I was in than be in and wishing I was out.

Result for now:

AMZN Nov 100/105 Call Vertical Bought 1.18, Sold 1.90

190 - 118 = $72 profit per contract

(190-118)/118=61% gain

Amazon Bullish Kicker

 

I should wait until the end of the day to enter this trade, but the market momentum for today is very strong. So it seems very unlikely the technical setup will not be in pace at the Close. The market gapped up today on the CPI inflation report that indicates inflation is easing. I think this sentiment is premature, but I think it'll last long enough to hit our Target.

AMZN is showing the following on the Daily chart above:

• Kicker candlestick pattern
• Bounce off the 127.2% Fibonacci level
• Low stochastics
• Likely Close above the 8ema

The Target is the top of the 109.77 - 104.87 gap. Bought AMZN Nov 100/105 Call Vertical option spread for 1.18 at 12pm ET today. The close proximity of the 11/18/22 expiration date will help with the "fuller" valuation of the spread than a later dated expiration. The spread will help mitigate the high Theta time decay.

Energy May Be Turning On - Update 4

XLE Daily

Today's price action is both good and bad. 

Its good because we gapped up at the open. We made a higher high and a higher low. We closed above the 8ema, and also the 3ema.

Its bad because we gapped up on high Stochastics. This could be interpreted as an "Exhaustion Gap".  Exhaustion Gaps can indicate an end to the current trend, which would mean price starts heading down from here. We also came close to forming a Dark Cloud Cover candlestick pattern. Such a pattern can also indicate an end to the current trend.

A Dark Cloud Cover needs to close below the 50% midpoint of the previous candle. The endpoints of the previous day's candle body are 72.13 - 73.76. The midpoint is (72.13 + 73.76)/2 = 72.95. The endpoints of the previous day's full candle are 71.27 - 73.83. The midpoint is (71.27 + 73.83)/2 = 72.55. Today's close was 73.09, so technically we did not form a Dark Cloud Cover candlestick pattern. 

If you look at the red candle from 7/22/22 and the green candle before it, you'll see a valid Dark Cloud Cover candlestick pattern. However, even though that was on high Stochastics, we continued upward this week. Another example of the same thing are the candles from 5/31/22 and 5/27/22. You can see them on the chart above.

After considering what was on the chart at the end of the day today, I decided to hold the position.

Energy May Be Turning On - Update 3

XLE Daily

We recovered well from the little dip. Today and the previous candle both made higher highs and higher lows. We haven't closed below the 8ema since we entered the trade. And we have a relatively clear path to the 50sma Target.

Short term Stochastics are high, but if you look back to May 17th through June 10th, you'll see Stochastics pinned near the top as price continued higher. So, this can happen again.

We may encounter some resistance at the previous swing high around 77 on June 29th. But the 50sma (our Target) is gently sloping down. So it may be close to the 77 level anyway.

We made a nice green candle today and the trade is on.

Energy May Be Turning On - Update 2

XLE Daily

We were doing so well, but today we took a dip. We created a lower high and lower low for the day, which is not what we want to see. Also, Stochastics are knocking on the door of the oversold level.

However, we managed to crawl back and close above the 8ema and the 20sma. So, I think we're still good. At least to hold overnight tonight.

The 50sma Target closed at 78.66, so we left our 78.50 Target unchanged.

Energy May Be Turning On - Update 1

XLE Daily

Today's price action was an excellent confirmation we're on the right track. Look at today's candle. The Open was 70.06 and the 70.04 low was immediate and negligible. The Close was 72.32 and the high was 72.50. Very close to the Close. This shows XLE was on a mission to climb today.

We opened right on the 8ema, penetrated the 20sma, and closed well above it. Combined with yesterday's Doji candle, we formed a Left/Right Combo candlestick pattern, which is Bullish.

Also, the ADX did a Bullish cross. Plenty of room before Stochastics become overbought.

The 50sma closed at 78.95, so didn't need to change our 78.50 target.

Bottom line, we had a very Bullish day. Our September 75 Call increased from 3.05 to 3.60. That's a .55/3.05 = 18% increase. Looking good!