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Trading Oil

Fri, Jun 6, 2008 - 12:25pm

With Gold and Silver going into hibernation at least temporarily our attention this week focused on trading Oil, currencies and forex. The snap reversal in Oil left many traders wondering what they missed. What was that secret line that the big boys knew so well and you didn't? Was it predictable that Oil would bottom at 121.61? Many years ago when markets turned at these invisible points I would wonder forever, why. What made markets turn and how did the big money know. Like the invisible man, the Daniel sequence numbers are hidden but active in all markets. Now for the first time some of them at least are being revealed. We examine what a selection of them had to say this week.

Oil

oilDC numbers found the high with precision on Thursday 22nd May with the following chart published on Financial Sense on 05/23 with this comment:

The first level at 82.52 stopped the market for four weeks; the next at 99.32 turned the market and held it for fourteen weeks and then became support for three weeks; 111.26 stopped this market cold and turned it back to the previous DC number; 123.20 was recognised for just 48 hours and 130.28 was ignored so these will likely become important support levels to Oil in the future; and 135.14 has today turned back Oil! Interestingly on the monthly chart we had 2 degrees of DC numbers also targeting the 134/135 area.

oil

We moved on to the short trade and watched oil give up almost $14.00 into Wednesday's low at 121.84. Thursday broke just 23 ticks lower before a savage rally clawed back 80% of the pullback in just one and a half trading sessions. It's the Dollar; its OPEC: its Nigeria; its Iran cried an assortment of commentators and even a number of traders wondered what they had missed as the shorts got belted around the ears with little ceremony.

None of those candidates or the powers that be had anything to do with this timely reversal. The market stopped falling because it had reached its Danielcode number and that number caused shorts to close their positions. This means of course that shorts have to buy the market to square their positions. For those who didn't know where the targets were for this first thrust down, the rally has snatched their hard won gains. For complacent longs, you are not off the hook yet. Even simple corrections have a nasty habit of being three pronged affairs.

As I continue to insist, the DC numbers define all markets in all time frames and this was no exception. The DC numbers are generally published at the Danielcode Online twice a week before the US open on Monday and after the close Wednesdays. Forex which runs on GMT and starts trading for the week at 1700 CST on Sunday has its charts posted on Saturday evening US time so there is never an excuse not to be aware of the markets position.

Below is the Danielcode Oil chart posted after the close on Wednesday. The first DC target at 121.71 has been reached, the slow stoch is already in oversold territory and more sensitive indicators were signaling small but significant divergence at Wednesday's close. Wednesday in fact gave us a classic DC setup bar as explained in the new DC trading manual and updated FAQs available at the Danielcode website. Canny traders who knew the DC numbers, and could read the signs knew that 121.71 was a high probability price for a turn.

oil

Ideally this was a level at which to take profits on the short trade but at the least it was an area to tighten stops to protect profits and prepare for a reversal. That is exactly what happened as Thursday broke marginally lower to 121.61 before feeling the lash of the DC number which it penetrated by just 10 ticks before doing what markets do and breaking the shorts' hearts!

You will see on the following chart that the only place where the fast stoch (a crude but effective tool) and the DC numbers put together an oversold position and a precise hit on the DC targets was at the 121.71 low, and that is precisely where the low of the move came. Having identified the May high to a few ticks and to the day, the DC numbers gave us the low to just 10 ticks and the rally ensued. 13.48 points down and 8.97 up so far gives us some part of 22.45 tradeable points and at $10.00 per 1c tick the two way trade was a nice booster to your P&L. Some part of $22,000 per contract. Nimble traders who knew the numbers are being rewarded.

crude

For those with a longer time frame, the weekly chart posted to the website on Sunday indicated the two nearby targets at 124.27 and 121.43. Other DC targets not yet realized have been removed from these charts in the interests of subscribers. Neat enough?

crude

Equity Indices

For the S&P this week we had the first DC target at 1368.70 and the market's low for the week so far came just 1 point away and the DJ target at 12328 was close enough to enforce a turn up on Wednesday. Friday's employment figures might tell another story as the S&P closed Thursday right at its 50% DC retracement, a point that large equity markets habitually park while they are waiting for Godot. Or news.

s and p

Currencies and Forex

DX continued to defy the doomsayers with its rally from the DC number at 71.83. If you needed to know where it was headed, the DC members' charts had two degrees of resistance at 73.93. We often see that the DC numbers provide a stronger signal where there are several degrees of targets coinciding. This means that we are getting very similar price targets from different price structures. Strangely what you would think is a completely logical supposition (2 lines are stronger than 1) is not supported as being specially significant on back testing but it continues to be a feature of the Danielcode that warrants our notice.

On Thursday the DX temporarily ended its rally when it was turned back just 6 ticks from the reinforced DC brigade.

dollar

DX strength had a nice wake up effect on several forex markets that followed their DC script neatly to turn at their DC numbers. Here is Thursday's trade in EUR-JPY. Wednesday's low at 161.72 was just 17 ticks (pips) from the next DC number and the fast stoch was nicely oversold. Note that stochs, MACDS etc are all lagging indicators. That's why we only want them in the overbought/oversold zone. If you wait for them to cross, the party is usually over.

yen

AUD-NZD was the biggest winner of the week on New Zealand Reserve Bank news that it would ease interest rates this year. For more on this continuing fiscal farce see this week's "Charting around Asia" article at Financial Sense Asia page.

I invite you to visit the Danielcode website where we now have a new trading manual and updated FAQs that will help illuminate the mysteries of trading the Daniel number sequence.

About the Author

Lawyer and Financial Consultant
jneedham [at] thedanielcode [dot] com ()
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