I find the situation developing with crude oil to be one of the more challenging and fascinating aspects about speculation.
Despite the fact that I have been long UCO (ultra-long ETF for crude oil) inside 12631 for a few weeks now, I remain skeptical of crude’s breakout in the sense that when an obvious, multi-year symmetrical triangle forms (second chart, below, of the monthly for crude), the initial move lends itself to a head-fake. Furthermore, as I wrote earlier this month, when price spends too much time grinding towards the apex of a triangle instead of a powerful breakout roughly three-quarters of the way before it reaches the apex, you often see a far less explosive move than you might have anticipated, since the grind towards the apex uses up tons of energy and even buying power, if you will.
Nonetheless, keeping it simple is how I am negotiating this move in crude. In particular, the first chart below of the USO ETF shows the daily breakout from consolidation. What is interesting is that not only has the breakout gap held, but crude is pushing higher yet. I understand there are tons of spec longs in crude, perhaps too many for this move to be legitimate. But this type of action, on its face, is bullish. I would need to see that gap fill violently sometime soon in order for me to think the bull trap has actually been sprung.
Also note on the first chart that we may have already seen the head-fake in the form of a bear trap in April.
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Agree with you about length of time in a triangle – my experience is when price eventually reaches the apex it turns into more of a consolidation, rather than a breakout. But you could look at the “bear trap” as an island reversal below the triangle; that lends credence to the breakout thesis. More bullish evidence is XLE barely dropped during that time, and is making good progress towards new highs.
good points
I closed my June UCO call spreads yesterday – and will roll to July if this shows me something. For now though the volume is un-inspiring and the COT you mention is a huge red flag as well. Also with the pounding the DX has taken of late one would think CL would have ripped higher…back in the stalking camp for me