USOIL - Bearish analysis & lesson
Updated
G'day all, hope you're well!
I don't usually publish my ideas, but I thought this might be worth a look since I've been experimenting with the effects of EMAs and Fibs on charts in what I like to call "Order of Priority". So, let's dig in. Before you read on, you hereby acknowledge that you will possibly be exposed to crappy chart jokes that may or may not include some form of innuendo and will likely be dad level, as well as a long-winded explanation.
There are a few things happening in this chart that point to a short term downside target or at least 80/barrel - possibly lower.
The first is the obvious giant 'W' pattern whose target was suspiciously met to within a buck or 2. The way I measured it is by running a Fib retracement from the last high prior to the W to the first wick after the lowest wick - I did this to find the .618 (dotted line Fib retracement on the left). I ignored the major drop as it was an anomaly. The wick after it lined up with the previous market bottom which made more technical sense. The .618 lines up perfectly with the 'W' neckline, so now we have a beginning and end point for a measured move - from the .618 down to the legitimate wick. Move that line upward and you have your target that met with scary precision. W patterns usually retrace to the neckline which is usually a .5 Fib after the move plays out, which lines up with the .618 Fib that we used to find the neckline. If it retraces lower, it's usually a speedy move to the .618 before becoming range-bound at around the .5. I've found this to be pretty typical of 'W' patterns in general.
Secondly, we have the RSI and MACD indicators looking all depressed. A solid bearish divergence on the RSI and a downticking MACD, like 2 emo teenagers fighting over a black tshirt. In my experience, bearish divergences don't tend to reset until they first hit oversold territory, and there's a bit of a way to go before that happens. That distance in the RSI from the current position to oversold lines up nicely with a price movement to the $64 - $70 zone, assuming there's a quick buy-up. The MACD usually doesn't confirm a reset for the next move up until it falls below the median line and crosses upward again with conviction. Conviction is key here, it can't be a half-assed cross over like those 2 emo kids.
Thirdly, we have the EMAs. The values I use are Fib values: 9 (blue), 13 (purple), 21 (red), 55 (yellow), 200 (Sasha Grey), 600 (light grey). There's a nifty rule I found works great after major moves:
* If after a major move the price falls below the 9 EMA and fails to get back above on retest, we're going to the 21 EMA.
* If the price falls through the 21 EMA and fails to get back above on retest, we're going to the 55 EMA.
* If the price falls through the 55 EMA and fails to get back above on retest, we're going to the 200 EMA.
* You get the point, same for the 600 EMA.
Right now, it's failed to get back above the 21 EMA on retest. Guess what the next target is? Now here's the kicker, if it falls through the 55 EMA, the 200 EMA is waiting for the price right at the neckline of the W pattern, with the 600 EMA resting right on the 0.5 Fib retracement when measured from the major low to the major high (dotted line Fib retracement on the right). Coincidence? Who knows.
"OK smartass, so what happens when we fall through ALL the EMAs then?" I hear you ask. First, don't be a wickhead. There's an order to these things. Everything has its own gravity in the charts, which is why I described everything above in that order. What has the most gravity, I believe, is the .618. That's at around $46 - $49. If the price falls through all the EMAs, that is the next major safe target. I say safe because of risk level. Sure, it could wick as low as the thick blue support trend line, but price will generally equalise at the .618 over time and it's generally where buy orders fill when these EMAs are broken. Placing any below there is an idea, but they're less likely to fill.
"Damn it Shifty, why didn't you just call the .618 instead of wasting our time with your crap about colourful lines and levels that sound like pasta?". Well, because each of those steps has it's own trading opportunities, particularly the EMA rule. On a lower timeframe, the trades in the EMA zones alone when you reference the weekly are gorgeous.
I hope this is helpful to someone out there who could play around with these concepts on other charts. I have other rules that I've come up with to do with Fibs and EMAs, so if you liked this crappy dad-joke of a lesson, let me know in the comments and I might go into more stuff down the line :)
Stay safe all and happy trading!
I don't usually publish my ideas, but I thought this might be worth a look since I've been experimenting with the effects of EMAs and Fibs on charts in what I like to call "Order of Priority". So, let's dig in. Before you read on, you hereby acknowledge that you will possibly be exposed to crappy chart jokes that may or may not include some form of innuendo and will likely be dad level, as well as a long-winded explanation.
There are a few things happening in this chart that point to a short term downside target or at least 80/barrel - possibly lower.
The first is the obvious giant 'W' pattern whose target was suspiciously met to within a buck or 2. The way I measured it is by running a Fib retracement from the last high prior to the W to the first wick after the lowest wick - I did this to find the .618 (dotted line Fib retracement on the left). I ignored the major drop as it was an anomaly. The wick after it lined up with the previous market bottom which made more technical sense. The .618 lines up perfectly with the 'W' neckline, so now we have a beginning and end point for a measured move - from the .618 down to the legitimate wick. Move that line upward and you have your target that met with scary precision. W patterns usually retrace to the neckline which is usually a .5 Fib after the move plays out, which lines up with the .618 Fib that we used to find the neckline. If it retraces lower, it's usually a speedy move to the .618 before becoming range-bound at around the .5. I've found this to be pretty typical of 'W' patterns in general.
Secondly, we have the RSI and MACD indicators looking all depressed. A solid bearish divergence on the RSI and a downticking MACD, like 2 emo teenagers fighting over a black tshirt. In my experience, bearish divergences don't tend to reset until they first hit oversold territory, and there's a bit of a way to go before that happens. That distance in the RSI from the current position to oversold lines up nicely with a price movement to the $64 - $70 zone, assuming there's a quick buy-up. The MACD usually doesn't confirm a reset for the next move up until it falls below the median line and crosses upward again with conviction. Conviction is key here, it can't be a half-assed cross over like those 2 emo kids.
Thirdly, we have the EMAs. The values I use are Fib values: 9 (blue), 13 (purple), 21 (red), 55 (yellow), 200 (Sasha Grey), 600 (light grey). There's a nifty rule I found works great after major moves:
* If after a major move the price falls below the 9 EMA and fails to get back above on retest, we're going to the 21 EMA.
* If the price falls through the 21 EMA and fails to get back above on retest, we're going to the 55 EMA.
* If the price falls through the 55 EMA and fails to get back above on retest, we're going to the 200 EMA.
* You get the point, same for the 600 EMA.
Right now, it's failed to get back above the 21 EMA on retest. Guess what the next target is? Now here's the kicker, if it falls through the 55 EMA, the 200 EMA is waiting for the price right at the neckline of the W pattern, with the 600 EMA resting right on the 0.5 Fib retracement when measured from the major low to the major high (dotted line Fib retracement on the right). Coincidence? Who knows.
"OK smartass, so what happens when we fall through ALL the EMAs then?" I hear you ask. First, don't be a wickhead. There's an order to these things. Everything has its own gravity in the charts, which is why I described everything above in that order. What has the most gravity, I believe, is the .618. That's at around $46 - $49. If the price falls through all the EMAs, that is the next major safe target. I say safe because of risk level. Sure, it could wick as low as the thick blue support trend line, but price will generally equalise at the .618 over time and it's generally where buy orders fill when these EMAs are broken. Placing any below there is an idea, but they're less likely to fill.
"Damn it Shifty, why didn't you just call the .618 instead of wasting our time with your crap about colourful lines and levels that sound like pasta?". Well, because each of those steps has it's own trading opportunities, particularly the EMA rule. On a lower timeframe, the trades in the EMA zones alone when you reference the weekly are gorgeous.
I hope this is helpful to someone out there who could play around with these concepts on other charts. I have other rules that I've come up with to do with Fibs and EMAs, so if you liked this crappy dad-joke of a lesson, let me know in the comments and I might go into more stuff down the line :)
Stay safe all and happy trading!
Note
Apologies, I forgot to mention the value of the orange EMA - it's 34. Nobody cares much about the orange one, that's why I forgot about it. It's like that one person you know who drops things all the time or that boss at work that just delegates tasks and does nothing themself: "oh, you need me as support, ohhh umm WHOOPS I slipped, sorry 55! Can you catch it? Oh great! Oh you need me as resistance now?? Shit...hey 21, I have this thing for you it weighs a bit.."
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