Trade Setups Aug. 11th
$Oil bounced solidly off of $80. Is it a bottom?
Like everything, $Oil has been getting hammered shedding $20 a barrel of value since the end of July after failing to recapture $100. Since then, the sell-off has been aggressive with three days shedding almost $5 a day which is quite extreme.
Since then, the pair seemed to have stopped on the $80 level and tested it 3x before having a solid up-close on the day with today holding above $85. The question then remains – is this a bottom>?
Ultimately, we feel it is not and here is why. $Oil was if you recall just at $115 in the beginning of may where it started it the aggressive selling. It had a brief reprieve for about two weeks, then started selling in early June. Then another reprieve and again the selling from $100 down to $80. So its dropped $35 from the high and sold off for 3mos straight.
It seems highly unlikely the bottom would come after a 3 day test of the $80 level and then start another run back up. Usually bottoms after large drops take a lot longer to form and this doesn’t fit the bill. We suspect its a temporary bounce from the massive panic selling as of late thats gripped the market. Usually when the market is in panic selling is when you get a bounce and we are seeing it in the $DJIA, $SPX, AUDUSD, USDCHF, EURCHF and NZDUSD – all instruments that sold off heavily as of late. So this bounce is to be expected but rarely is this the end. And with so much uncertainty in the global markets and economic environment, its rare there is not some sort recession of sorts.
So with that being said, how can we get back in short?
Using the chart below, we like the $90 level which represents;
a) a previous key support level at $89.98
b) the 50% fib level of the last major downleg
c) where the daily 20ema is holding. Remember, as we’ve been saying for years now, the daily 20ema is evolving or dynamic resistance and could easily provide a nice impetus and pullback level for institutions to get short again. Volumes across the board have been increasing during these sell-offs while volumes were timid during the rally for the first half of the year suggesting the larger players are really involved in this so we think these bearish moves got more legs to go.
In terms of targets, look for the 38.2% fib and $80 to be your targets should the trend to the downside resume.
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