CRUDE OIL’S BIG DAY OF RAGE AGAINST THE MACHINE IN SAUDI ARABIA

With crude futures off their recent highs early Wednesday morning, there appears to be a bit of calm in the air before the proverbial storm or, in this case, spring. With the “Arab Spring” continuing to take hold in the Middle East, protests and Shi’ite marches are expected in Saudi Arabia during the now ubiquitous “Day of Rage” on March 11 and 20. Indeed, oil traders will be watching this situation very closely, as heightened political, social, and economic unrest is likely to cause similar types of spikes that we saw with Egypt and Libya headlines.

Of course, legendary commodities investor Jim Rogers is not convinced crude is rising due to tensions in the Middle East, so much as because “…the world is running out of known reserves of oil.” Either way, you can be sure that “black gold” will continue to be all the rage in the coming days.

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[youtube:http://www.youtube.com/watch?v=ZdzRHQHWPMk&feature=related 550 412]

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[youtube:http://www.youtube.com/watch?v=szGzAxJ0fbw&feature=related 550 412] __________

All kidding aside, despite how promising many of the charts of the optical plays looked last weekend, I want to reinforce a concept that I have discussed numerous times: If you swing trade based on technicals, then holding full positions through earnings is a pure, weekend in Vegas, gamble. Technical analysis, at its best, can tell us what is currently known and legally knowable by the market. The less external variables you have at play, the more you can rely on technical analysis.

However, earnings presents a specific set of variables that can completely trump any chart you are looking at, as evidenced by the 36% post-earnings plunge in FNSR this evening, not to mention all of the brutal pin action plays like JDSU selling off hard in sympathy.

If you got caught with your hand in cookie jar, then cutting losses and moving on the next day is usually the best bet. You are better off, as a trader, wiping the slate clean and going back to basics. If you did not get caught in one those plays tonight, then you should do your best Bill Clinton imitation and “feel their pain,” so you can avoid making the same mistake in the future.

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[youtube:http://www.youtube.com/watch?v=G_pGT8Q_tjk&feature=related 550 412]

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[youtube:http://www.youtube.com/watch?v=3xBydH93eDY&feature=related 550 412]

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So sorry for being “that guy” who performs technical analysis on charts of cockeyed concocted financial instruments (the horror, OMG!). Looking at a daily chart of VXX, however, compels me to at least discuss the idea that this is one of the more bullish charts that I see at the moment. Note the steep downtrend, followed by a notable increase in buy volume to support the recent spike up. Since the move higher, we now have a small series of higher lows, settling into tight symmetrical triangle. Also note this is the first time since last September that the VXX has spent any reasonable amount of time above the 20 day moving average (now flattening and turning up, for good measure).

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What about the actual VIX, you say? Same deal. Residing above the 20 and 50 day moving averages more comfortably than at any point since the rally in equities began last September. If the bulls are going to see the November scenario I discussed in my previous post, I believe a spike in volatility would likely throw a wet blanket on that idea.

Watch the VIX.

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In my strategy video for 12631 subscribers inside The PPT last evening, I discussed a bullish possibility for the markets playing out, called “The November Scenario,” referring to last November’s breakout from a descending triangle. Thus far today, we have a bounce going that is starting to gain momentum. Putting the rally into perspective on a daily timeframe, we can see that the bulls are still incredibly resilient in holding a series of higher lows by a thread. Indeed, the 1300 level is proving to be the true test of mettle.

While I may put on some trades as the day progresses, in order for me to get really aggressive again on the long side I am looking for this symmetrical triangle to firm up and resolve to the upside. Ideally, you’d like to see the action calm down a bit and these violent price swings abate. This should happen as price reaches the apex of the symmetrical triangle shown below, on a daily chart of the S&P 500. If we see a few “doji” days of more quiet, than violent, indecision, I am confident we will see an abundance of charts set back up underneath the surface.

However, we do not have the luxury of trading the market that we want. Instead, just like everything else in life, the main thing is trying to correctly play the cards that you are actually dealt. Accordingly, given the recent propensity of the market to punish momentum BOTH longs and shorts (instead rewarding extraordinarily nimble traders who buy the dip and sell the rip), I will let the bulls prove themselves first by following up on today’s move to the upside before signally the “All Clear” sign.

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