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.

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

July Corn Possibly About To Pop - Update 7

July Corn Daily

We're still in the Gap, above the 38.2% Fibonacci level, and made a nice green candlestick, closing near the highs. This is somewhat bullish. 

However, we didn't close above the 8ema. In fact, we barely pierced it at all. This isn't very bullish. But we survived the weekend, and the trade still looks viable. 

Its reasonable to interpret this chart to imply we came down to this area to fill in the Gap. We did that. Now we're setting up to resume our upward trajectory.

This trade is going to continue to feel unconvincing until we close above the previous swing high, which was 810 1/4. If you look at the sequential swing highs and lows, you'll see we're forming a sideways wedge (or triangle). See the thin, white, angled lines.

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

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.

Fly United to Gartleyville - Update 12

Well, our UAL Aug 50 Call expired today. We bought it for $1.97 on 7/26/21. The chart looks weak, with a break below the triangle and a BB/KC breakout to the downside.

However, the Gartley pattern X point hasn't been violated, so its still a valid pattern. In fact, we haven't even violated the D point. So, I might trade this again to the long side, if we get a reversal.

On 7/26/21 this looked like a very Bullish chart. I don't regret going long. You have to accept not all trades will work. Again, this trade hasn't actually failed yet. It's just taking longer to reach a conclusion than I expected.

Bottom line, the loss is $197.

Fly United to Gartleyville - Update 10

We're at a very, very important point in this price action. It's very common for a break out to go back and retest the break out level. That's what we did today on the Daily chart. 

We closed right on the trend line as well as the 8ema and 20sma. Now its all about where we go from here. If we close substantially lower, like under the lower trend line for example, then its more likely we'll continue down, in my opinion. If we close above today's high then its more likely we'll continue the current upward trend. Of course, its quite possible we'll have a quiet Friday and close near today's close, in which case we'll have to wait until next week to see where we're going. 

There's only one economic report due out tomorrow that might move the market, but its not a big one. Its the University of Michigan Preliminary Consumer Sentiment at 10:00am ET.

If we close above yesterday's high, which is the high of this uptrend so far, that would be a very bullish indication. We're still coming out of Gartley D point, which helps with the odds to the upside, but we have bearish factors too:

• The D point is below the 78.6% Fibonacci retracement.
• We formed a Bearish Harami candlestick pattern today.
• We're below the 50sma.
• We're below the 200sma.
• We're in a larger down trend.
• We're in the 3 worst performing months of the year for equities (Aug - Oct).

The good news is our risk is limited to cost of the options. Cold comfort, but it'll be greatly appreciated if UAL takes a nosedive overnight or over the upcoming weekend.

Fly United to Gartleyville - Update 9

Not much to say here. We breached the upper trend line and closed above it. Also closed above the 8ema. Stochastics are still mid-range, so we have plenty of runway.

Today was very constructive to our bullish position, but we still have to get through the 200sma and 50sma to reach our target.

We're looking good but our $50 Call expires 8/20/21. So, I added an order to sell the position when we reach break even at $2.00 for the option.

Fly United to Gartleyville - Update 8

Interesting candle today. We're still within the triangle consolidation on the Daily chart. However, we did poke our head out above the upper trend line, but we closed right on the trend line rather than above it. We did close above the 8ema though. Notice today's candle formed a Bullish Engulfing candlestick pattern when combined with yesterday's candle.

Importantly, we are right at the point in triangle (about 80% to the apex) where you can expect a break out. We could certainly bounce off the upper trend line and start heading downward, and thereby continue the bearish price action that led into the triangle. But, since we're in a Gartley pattern, there's a very good chance we'll break to the upside. And this is my expectation sometime this week.