Super trend in crude

As crude oil prices rally over $100/barrel (NYMEX:CLK14), the question is: will crude be able to stay over $100/barrel or higher for any length of time?

Fundamentally, with strong economic data here in the U.S. and the potential for escalating problems along the Russian and Ukrainian border crude oil has been on the move. Russia continues to anchor troops along that border and has no intentions of backing off. In addition, they don’t seem to want to cooperate with the United Nations.

In terms of the economic data we saw the consumer spending report from February show the best numbers in three months. This past week we also saw household purchases climb which account for a large portion of the U.S. economy.

Other key factors of the climb in crude oil futures prices are the Libyan protests that have been ongoing. Then there is the inventory problem at the Cushing, Oklahoma refinery which according to a Bloomberg article (3/28) are at the lowest in about two years.

I now believe that it is very difficult for me to make a bearish case for crude oil, fundamentally. We could go back up and test the highs from early March at around $105/barrel.

Technically, on this May daily crude oil futures chart I have applied my favorite technical indicators like the 9-, 20- and the 50-day simple moving averages (SMA’s), the Bollinger bands (BB’s, light blue shaded area), volume, and candlesticks (green and red bars, where each bar represents a day).

Technically, my favorite indicators show me that the May futures crude oil market is on the verge of a “Super-Trend” up. This begins to occur when the 9-day simple moving average (SMA, red line) crosses up and over the 20 day simple moving average (SMA, green line). Well, that has not occurred yet, but the crude oil market on this May daily chart has moved from a low of $97/barrel on March 17 to a high of $102.24/barrel on March 28. That’s $5.24/barrel in about 10 trading days.

This moved has caused the first part of my “Super-Trend” up to start because of the 9-day SMA (red line) is pointing almost straight up. For the “Super-Trend” up to continue we need a few more items to take place, but we are not far from that happening. Stay tuned to see if we complete our “Super-Trend” up.

Since, I am now bullish on this market there could be several potential ways to play this market with “option plays” and one could be to buy straight call options or bull call spreads in a 3 to 1 ratio with a put for a hedge or “insurance” in case the trend changes on a dime and the market falls. Another potential play could be to sell naked options or option spreads again with protection maybe in the form of a futures contract or with other option plays. Remember, when you sell naked options you have unlimited risk and should have a “well-funded” account of risk capital. For exact details on months, 

About the Author
Matt McKinney

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.

Futures and options trading involves substantial risk and is not for everyone.

Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome