Saturday, December 13, 2014

Tumbling Crude: Profiting on the Downside

Man-oh-man, now that the price of Crude Oil has fallen nearly 50% from its last pivot high of $114 dollars per barrel in 2011, the entire world has suddenly begun to take notice.

From the ongoing currency wars, to geopolitical tensions, to economics of the actual supply-demand equation, there is no shortage of speculation as to the reasons behind the recent tumble in crude.

The chart below illustrates a mostly developed big-picture overview of the price action in Crude from its crest just shy of $150 per barrel in 2008.

Following a rather incredible parabolic 486% rise to the top, the journey toward its subsequent crash low in 2008 was far more swift and unforgiving.  
From an Elliott Wave perspective, it’s difficult not to view the 75.98% crash low as a large Cycle-Degree wave terminal (in this illustration noted as the largest A-wave) however, this mega-terminal can shift to a forthcoming low of the current decline contingent upon just how low oil goes before basing.

Now that we have a handle on the already developed price action in Crude, you might be wondering how the Chart-Cast Pilot portfolio navigated the last major leg down of this recent bear market decline. Fair enough.

To respond, we’ll take a brief look at how the Pilot fared in each of the three time horizons for which it shares position status with subscribers.

To look at the long-term component, we must first take a brief step backward in time. Going back to the week ending July 18 2014, this position chart illustrates the Chart-Cast Pilot portfolio going short in long-term investment accounts at a price of $100.05 per barrel. 
Prior to taking the current long-term bearish stance, the market was thrashing and chopping with an upside bias for more than a year. During such time, back in June of 2013, with crude trading around $97, take note of the 14-pts of upside captured from an ancillary trade trigger cited by the Pilot. Two months later in August, crude oil crested its intermediate (b) wave at $112.24, which gave the Pilot’s target of $111 a buck-24 to spare.

As an aside, take additional note of the rising red trendline denoting at the time, a resting 40-pt sell-trigger, which if breached, would open the possibility for an additional 40-pts of downside toward a $40 dollar per barrel target.

Now let’s fast forward, to see where we stand today.

At the close of trade on Friday December 12, the Pilot’s bearish position in long-term investment accounts was flush with open profits of nearly 42%. 
Take note of the escalation in downside price action upon crude breaching that previously referenced red trendline, triggering the 40-pts of potential downside toward the $40 dollar per barrel target.

From an Elliott Wave perspective, it appears that the market is descending within a 3rd wave down at minor degree.

Well that’s where the portfolio now stands in term of the long-term time horizon. How is the Pilot faring in the remaining time horizons? To do that, we must review the history for the medium-term component of the Chart-Cast Pilot portfolio.

Once again, let’s begin by going back in time to the week ending August 11 2014. From that vantage point, this position chart illustrates the Chart-Cast Pilot portfolio going short in medium-term speculative accounts at a price of $36.23 – by way of the USO (ETF/exchange-traded fund).  
In the two lower chart panels, note the down arrowed alerting sell signal occurring, and the previous trades recorded loss of 1.82% on the previous long position taken prior to the Pilot guiding members in reversing to the short side of USO on the 11th.

Now let’s fast forward to today, to see where we stand in the Medium-Term Speculative Accounts.

At the close of trade on Friday December 12, the Pilot’s bearish stance in medium-term speculative accounts was flush with open profits of nearly 40%. 
Take note of an ancillary downside price target captured at the 27 handle.

Well that’s where the portfolio now stands in terms of the medium-term time horizon.

Finally, we suspect you may be wondering just how well the Pilot fared with short-term accounts in recent weeks?

How about:

Over 10K in open profit per Contract in less than a Month

That’s right folks, positions taken in the big crude oil contract on December 4, are now sporting open profits north of $10,000 dollars per contract traded. 

What is the take away from all this? There are clearly two. 

First, regardless of any rigging or fundamental causation, what always matters the most are timing, price, and trend – relative of course to the specific time horizon with which one has engaged.

Second, is to take notice that within the several charts above, in trading the respective time horizons successfully, that it is not necessary and rather impossible to move short at absolute tops or go long at absolute bottoms when engaging in harmony with underlying trends.

Until Next Time,

Trade Better / Invest Smarter

The Chart Cast Pilot and Elliott Wave Technology’s Guardian Revere Long-Term Trend Monitor are the proud sponsors of this communication.