Crude Oil Technical Analysis 6/8/2011

Pivot: 99.90

Our Preference: SHORT positions below 99.9 with targets @ 97.85 & 96.9.

Alternative scenario: The upside breakout of 99.9 will open the way to 100.56 & 101.8.

Comment: the RSI is mixed and calls for caution.

Trend: ST Range; MT Range

Key levels Comment

101.8* Intraday resistance
100.56** Fib retracement (50%)
99.9** Intraday pivot point
98.4 Last
97.85** Intraday support
96.9** Intraday support
95.55** Intraday support

Crude Oil‏ (Jul 11) intraday: the downside prevails.

Pivot: 101.80

Our Preference: SHORT positions below 101.8 with 99.5 & 97.85 in sight.

Alternative scenario: The upside breakout of 101.8 will open the way to 103.5 & 105.

Comment: quotes are breaking down their bullish channel.

Trend: ST Range; MT Range

Key levels Comment

105*** Fib retracement (50%)
103.5** Fib projection
101.8** Intraday pivot point
110.5 Last
99.5** Intraday support
97.85** Intraday support
95.8** Intraday support

A Day-Trading Strategy for Crude Oil Futures

The crude oil market can be quite volatile and therefore painful to trade if you don’t have a sound risk-management strategy. However, with volatility also comes opportunity, and day trading crude oil can be both fun and profitable when you’re on the right side of the market and have a solid plan in place. Since the launch of the Globex (electronic) crude oil contract, this market has been a favorite of many for day trading, and there’s even a mini contract if the larger contract is priced out of reach. There are many different strategies one can use to day trade crude oil futures. My personal favorite is using the MACD (Moving Average Convergence/Divergence) on a five-minute chart.

The MACD is a technical indicator created by Gerald Appel in the 1960’s. It is a trend following momentum indicator that shows the difference between a fast and slow exponential moving average (EMA) of closing prices. When using this study there are two moving average lines on the chart. One line, typically blue, is the MACD. The MACD line equals the 12-period EMA minus the 26-period EMA. Another line, which is generally red, is the signal line. The signal line is the nine-period EMA.

The signal line acts as a “trigger” to pinpoint when you’d want to buy or sell. As shown in the chart below, when the MACD falls below the signal line, it is a bearish sign, which indicates that it may be time to sell. On the other hand, when the MACD rises above the signal line, the indicator gives a bullish signal, which indicates upward momentum should follow.

I favor this approach for trading crude oil because of the volatility in this market. It’s a great tool that allows traders to be nimble, and helps determine when to reverse your position. In a less volatile market, you are more likely to get “whipsawed” and not be able to execute your strategy properly. This strategy can be applied to longer-term trades but you’d want to use a daily chart, rather than the five-minute chart that I recommend for day trading. You certainly want to use stops when you trade, and can place them at levels appropriate to your own personal risk tolerance. Ideally, you would want to hold your position until you get a sell signal when you are long, or a buy signal when you are short. At that time, you’d then reverse your position. If you aren’t comfortable trading this market, working with a professional can help you determine an appropriate risk-management strategy and trading approach. 

Investor sues oil traders over alleged manipulation

(Reuters) - Two oil traders and their trading firms, already facing regulatory charges of alleged manipulation in the market for crude oil futures, were sued Thursday by a derivatives trader who claims he was harmed by their activities.

The lawsuit comes two days after the Commodity Futures Trading Commission sued the two traders in its biggest ever oil market manipulation case. The CFTC case against traders James Dyer of Oklahoma's Parnon Energy and Nicholas Wildgoose of Europe-based Arcadia Energy marks an aggressive push by regulators seeking to police the commodities markets.

The derivatives trader, Stephen Ardizzone, filed his own case against the defendants, seeking class-action status on behalf of other investors he claims were also harmed by the alleged market manipulation.

The lawsuit says that Dyer, Wildgoose and their trading firms manipulated derivative financial contract prices for West Texas Intermediate crude oil traded on the New York Mercantile Exchange from late 2007 to mid-2008.

"Defendants aggressively exploited their massive physical WTI position to cause artificial prices that unlawfully created profits from their trading positions," the lawsuit said.

The case was filed in U.S. District Court in Manhattan, the same court where the CFTC brought its case on Tuesday.

The defendants are familiar names in the U.S. oil market. Dyer and Wildgoose were both traders at BP Plc (BP.L) a decade ago when the British oil company's practices came under scrutiny because of its ownership of oil tanks at the delivery point for U.S. oil futures in Oklahoma.

BP was hit with a record $2.5 million fine by the New York Mercantile Exchange in 2003 for alleged U.S. oil market manipulation, which it paid without admitting any wrongdoing. Neither Dyer nor Wildgoose was accused of misconduct in that case.

In Tuesday's case, the CFTC alleged that Dyer and Wildgoose amassed and sold off of a substantial position in physical crude oil to manipulate futures prices.

Colin Hurley, the chief financial officer of Arcadia, which is affiliated with Parnon, said in a statement Wednesday it plans to fight those charges.

London-based Arcadia, a major global oil trader, and Parnon are both owned by Norwegian tycoon John Fredriksen, known as "Big Wolf" in the shipping industry.

Dyer lives in Brisbane, Australia, while Nicholas Wildgoose lives in Rancho Santa Fe, California, according to Thursday's lawsuit brought by Ardizzone, of Staten Island, New York.

Ardizzone makes claims for manipulation in violation of the Commodity Exchange Act and monopolization in violation of the Sherman Act.

The lawsuit does not specify an amount of damages sought, but Kellie Lerner, an attorney for Ardizzone, said that the estimated damages are in excess of the $50 million that the CFTC says the defendants illegally pocketed from their scheme.

Lerner also said that the potential group of traders harmed by the defendants' actions was likely to be in the thousands.

Ardizzone's case is not yet a class-action. That designation can only be made by a judge, who would decide whether a group of plaintiffs can pursue a case collectively.

The case is Stephen E. Ardizzone v. Parnon Inc et al, U.S. District Court for the Southern District of New York, No. 11-3600.