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 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 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.

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.

Energy May Be Turning On

XLE Daily

XLE looked bullish enough this morning to go long. Got a XLE Sep 75 Call for 3.05.

Here's what I see:

• Bounce off the 61.8% Fibonacci level
• Bounce off Support/Resistance level around 65.50
• Positive Stochastics Divergence
• Bounce off 200sma
• Trend Line Breakout
• Close over the 8ema

Set the Target to the 50sma at about 78.50. This will need adjustment as the 50sma is slowly descending.

Set the Stop to just under the 65.48 swing low at 65.36.

I'll look at the risk/reward in terms of the stock rather than the complicated theoretical estimate of the option:

Risk: 70.36 - 65.36 = 5.00

Reward: 78.50 - 70.36 = 8.14

R:R = 8.14/5 = 1.628:1 Not very good but its a rough estimate and fixed maximum loss.

July Corn Possibly About To Pop - Exit

July Corn Daily

We broke out of the wedge to the downside and hit our Stop. Not much more to say. 

It looked very promising when we entered, but a significant percentage of trades don't work out. The best you can do is follow your process, that has a proven edge, and control your risk. You can't ensure a win when you enter a trade, but you can go a long way to control your risk.

Bottom Line:

Entered: 794 1/2

Exit: 781

Net: 781 - 794 1/2 = -13.5 * $10/pt = -$135.

Entered: 785

Exit:772 5/8

Net: 772 5/8 - 785 = -12.375 * $10/pt = -$123.75

Total loss: $135 + 123.75 = -$258.75

Live Cattle Megaphone

Above is a Daily chart of April Live Cattle futures (Symbol LE). Not much on there pertains to this trade. Just look at the purple Fibonacci range and the 2 angled, straight, thin, white, lines that form a megaphone pattern.

A pattern I learned on DayTradingRadio.com years ago is to buy when price hits a Trend Line when Stochastics are extremely oversold. But you have to allow for some heat if price initially overshoots the Trend Line before reversing. Of course, price can continue down rather than reversing, so you need to control your risk with a Stop or by other means.

You can see on the chart above a beautiful megaphone pattern. Price just gently touched it right at the end of the day. On the bottom of the chart you can see Stochastics are extremely oversold. This is where you're supposed to enter a long trade. Its scary as @#$%^! Especially when you're trading a relatively illiquid commodity with a $400 point value, and no mini-sized contracts.

Also, notice we just went through the 200sma. This could add some pressure for price to reverse.

Fortunately, Live Cattle futures has options which can be used to limit your maximum risk to the cost of the option. Unfortunately, I didn't see this setup until 5 minutes before the 14:05 ET close. There wasn't enough time to get a Call option and enter long.

So, I want to enter tomorrow morning when the market opens at 9:30am ET, but not if price gaps down too far. How far is too far? I figure the 127.2% Fibonacci of the purple range is a reasonable support level. If it goes much beyond that, it's probably heading down to the 161.8% Fib or lower.

If this trade works, my expectation is for price to reverse and go back up to the top of the megaphone, or close to it.

Here's the order I entered after the Live Cattle market closed:

I entered a Buy Limit order to buy an April 142 Call with a limit of 1.3 points (1.3 pts * $400/pt = $520). The last option sold today was 1.2 points. Notice the Open Interest for the 142 Call. Its the largest of the Strikes being displayed. This suggests good liquidity when we buy or sell. It also suggests a lot of interest at that Strike price. I like both of those.

To avoid a large gap down open tomorrow that's too large, I added a condition that the futures price is greater than or equal to 135. I also made it a Day trade rather than a Good-Til-Cancel trade since tomorrow is a Friday and we're in the middle of historical geopolitical events. I may not want to enter this trade by Monday morning.

March Soybeans Formed a Bearish Gartley - Update 1

Wow, that happened fast. Yesterday we had a nice Bearish Gartley pattern, today we had a strong reversal. Today's candle combined with yesterday's candle forms a "Doji Gap Up" candlestick pattern. This is a strong indication of a change in investor sentiment.

When price crossed the 8ema and continued strongly, I decided to avoid greater losses and get out. At 9:36am ET I Tweeted "Dumped the March Soybeans Futures. Details later.". I watched the chart periodically during the day, looking for a reversal but it never came. 

I think exiting was the right strategy, but there's still hope. We're still in a Gartley pattern that hasn't failed. It hasn't even invalidated the D3 point. Neither have we violated the downward Trend Line you'd get if you connected the candle tops for the past 7 days.

I see four likely scenarios from here:

1. We quickly start heading back down.
2. We briefly continue upward but reverse back downward before violating the D3 point.
3. We form a new D point and head back down before violating the X point.
4. We violate the X point and set up a Butterfly pattern.

Because I have no idea which of these will play out, or some other scenario, I don't want to reverse our position to a long trade. Since we don't have an edge, it's better to just monitor the chart until we see a high probability opportunity.

Ag Reports Cut the Corn - Exit

In my original post for this thread, I wrote "Triangles are notoriously unreliable, in that the price can break out one way and quickly reverse and break out to the opposite side." Well, here's a @#$%^&*! example.

We had bounced off the 50sma on the Daily chart above and formed a Bullish Harami candlestick pattern. Next day we closed over the 8ema, then today we continued up, violated both of the Triangle Trend Lines, and hit our Stop at 612. Total change of the investor sentiment compared to what we saw in response to the major USDA report released 1/12/2022.

Can't expect to win them all. That's why, no matter how good you feel about a setup, you need to use position sizing such that your Stop won't cost you too much. We should place our Stop where it belongs, then protect ourselves by adjusting the position size accordingly. 

Summary:

Entry: 587 3/4

Exit: 612 1/2

Net:  587.75 - 612.5 = -24.75 * $10/pt = -$247.50

Ag Reports Cut the Corn - Update 2

Today's candle is even worse than yesterday's. We started with a gap down Open last night, which was very encouraging. But we ended the day closing over the 8ema, which can be considered confirmation for yesterday's Bullish Harami candlestick pattern. Not good.

However, we stayed under the 20sma and the downward angled Trend Line, as well as the upward angled Trend Line of the Triangle that we had broken through. Volume is the same as yesterday and Stochastics have been in the mid-range for about 15 candles. So no helpful insights there.

Should we stay, or should we go? Since its not unusual to reverse and retest a support area or Trend Line after breaking though it, and today is only Tuesday, and I don't see any significant grains reports through next Monday, and we have a hard Stop in place above us (612) for protection, I decided to hold on another day. Normally, a continued move above today's high would give enough confirmation to exit a short trade, but I think its reasonable to allow it, up to where we'd test the downward Trend Line. If we look like we're going to close over that, then we should get out.

I checked Wheat and Soybeans. Wheat made a very Bullish move today, while Soybeans look so weak, I took a short position. So we didn't get a clear signal on the grains to help with our decision.

Ag Reports Cut the Corn - Update 1

Certainly not what we wanted to see nor what I expected. Technically we bounced off the 50sma and formed a Bullish Harami candlestick pattern. These are Bullish indications.

However, we didn't breach the 8ema and we had somewhat lower volume today. Perhaps the big traders took today off to get a 4 day weekend. Also, its natural to have some profit taking after a strong move and before a 3 day weekend. Its also natural to test the underside of a Trend Line you broke through. We didn't get up as far as the Trend Line but we did make a move towards it.

Emotionally, I definitely wanted to exit this trade today and not take the risk of a big gap up after 3 days of no access to the market. However, I exercised my discipline and decided it was worth the risk to allow a counter-move. Using the mini-contract helped mitigate the fear of being out of control over my risk.

It also helped a lot not closing over the 8ema.

Bottom line, I held our Bearish position.

Ag Reports Cut the Corn

Yesterday 1/12/22 at 12:00pm ET there was a big set of Agricultural reports released. You can see the reports schedule here:

https://www.usda.gov/media/agency-reports?start_date=1%2F11%2F2022&end_date=01%2F14%2F2022

Here's the list of reports that came out yesterday:

As often is the case, the chart above is quite busy. Please focus on the green text boxes.

The response to the release yesterday was a long legged Doji candle. This represents indecision. My interpretation is the market needed to digest the information longer than the time left before the Close.

I waited until just before the Close today to check today's price action. As you can see on the Daily chart above, we have a very small wick on the top of the candle followed by a relatively large red down candle, and a close near the bottom of the candle. I interpret that to say the market digested the reports and decided it was Bearish. Who am I to argue.

Over the past few weeks, you can see we rejected off a confluence of Fibonacci levels from 4 different ranges. The high was 617 3/4. Then we formed a triangle going into the big reporting day, which makes sense. The resolution is a break out to the downside. Triangles are notoriously unreliable, in that the price can break out one way and quickly reverse and break out to the opposite side. However, given that the break out is in response to the reports a day after the release, I think we can reasonably expect this is the beginning of a down trend.

Also, notice the significant volume yesterday and today. This looks like the market is serious about this price action. 

Notice the triangle pattern led to a Bollinger Bands/Keltner Channel Squeeze. We haven't broke out of the BB/KC yet, but if price continues down we will. If we break out of the BB/KC we can expect 5-7 days of continued momentum to the down side after the break out.

Stochastics are in the mid-range, so we have some runway here before we need to start worrying about being oversold.

OK, let's consider Targets. In the triangle you'll see 2 thick, green, down angled lines. This illustrates an AB=CD pattern. The calculated D point is 578.25. This coincides with a clone of the triangle top trend line that is positioned at the low of the triangle.

Let's look at Fibonacci levels based on the whole up leg since 9/9/2021 with a low of 506 3/4. The top of the up move is the high of the triangle at 617 3/4. A 50% retrace down is 562.25, and the 61.8% retrace is 549.152. The calculations are shown on the chart in green.

There is a 200sma (thick, white, up angled line) which looks like it might be flattening out at 562 1/2.

I like that the 50% retracement (562.25) and the 200sma (562.5) are very close to the same level. So this seems like a good target for now.

I'm going to use a Stop just above the previous swing high within the triangle at 611 1/4.

Just before the Close at 14:13 ET I sold a YC mini-contract for 587 3/4.

Summary:

Entry: 587 3/4

Stop: 612

Target: 563

Risk: 612 - 587.75 = 24.25

Reward: 587.75 - 563 = 24.75

R:R = 1:1 which isn't great, but I consider this to be a high probability trade, which makes it acceptable.

Citi Group Gartley Pattern - Update 1

We gapped up above the Trend Line, continued higher but rejected off the 50sma and closed the gap. Nothing in this price action violates our Bullish thesis.

It's constructive that we closed right on the Trend Line vs below it. My expectation is we make a higher high tomorrow. Held the long position.