Option play: Is crude done?

May 11, 2015 12:53 PM

Technically, on the chart below I have placed my favorite technical indicators. They are the 9-day Simple Moving Average (SMA, red line), the 20-day SMA (green line) and the 50-day SMA (blue line). I have also added the Bollinger Bands (BB's, yellow lines) and candlesticks (red and green bars), each bar represents one day of trading on the daily chart and one month of trading on the monthly chart.

On the daily chart below the June crude market is in what I refer to as a "principal trend" up. This is a term I have coined that determines the strongest form of a trend that a market can be in according to my favorite technicals, whether up or down. In this case it's up. In order for this principal trend up to take place first I need the 9-day SMA (red line) to point up on a fairly sharp angle. Next, I need the 9-day SMA to cross up and over the 20-day SMA (green line). Then I need the 20-day SMA to also point up on a fairly sharp angle. As the 9-day SMA has crossed up and over the 20-day SMA and both indicators are pointing up together on fairly sharp angles, and the price of crude is using the 9-day SMA as the first area of support and is trading above the 9-day, then the principal trend up is in full effect.

However, it is testing the support of the 9-day right now as it traded below the 9-day for the first time in a while. At the end of the day on Friday we ended up closing right on the 9-day, so this coming week should be exciting especially since June crude oil options expire on Wednesday.


Daily June crude oil chart

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About the Author

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/.