Example of the Brent Trade from back in July
Instrument: Brent Crude Oil Sep 2014 (EOD) ICE
After a steep sell off after tensions cooled off in Iraq we saw Brent Crude (September 2014) fall from around $115 dollars a barrel to as low as 105.70. The 200 Day EMA proved to be strong support as prices have been consolidating around this level. With the 30 day EMA about to cross the 50 EMA, price fluctuations should remain between the 200 EMA and the 50 EMA for the foreseeable future. Further tensions in the Middle East and other systematic events could drive prices higher but holding everything else constant, don’t expect Brent to be above $109(50 EMA) for a while.
I believe we are going to see a narrow range of trading for at least the next week. I wouldn’t be bearish in this situation though; the 200 EMA has been a level of strong support for the past few days as it has been consolidating now. Yes it did fall through once, but it was bought back enough intraday by investors and computers that it closed above the 200 day EMA.
Evidenced by the graph on the next page the 100 EMA has proven to be a strong level of resistance as well. Price levels are currently fluctuating between the 100 and 200 EMA. This presents a rare opportunity in the trading world.
Brent is currently in what is known as a narrow trading range. This range is currently the 100 EMA as the upper limit and the 200 EMA as the bottom. It is a rather simple convergence trading opportunity to sell at the 100 EMA and buy at the 200 EMA. For example, if you did this exact trade today, between the two upper and lower limits you are looking at a 1.3% profit (1.38/106.87) intraday. The high of the day was 108.25=100EMA and the low of the day was 106.87 (200 EMA=106.86). In fact, you could have done this same trade the past week and profited almost the same amount if not more.
Simply put, I wouldn’t be long Brent above the 100 EMA until it closes above it and I wouldn’t be short until it closes below the 200 EMA.
