Brent Crude came back like a train yesterday taking us to a close just off Monday’s giddy heights. There is increasing volatility here, which often occurs at market extremes. There is Bearish divergence potential on the Relative Strength Index but this has yet to be confirmed. For those longs that believe we can hold and build from here, looking to buy dips to the Adaptive Moving Average line, which comes in at 976.5 today, is working very well at the moment. We are also still above the 38.2 Fibonacci Retracement 963.8 which keeps things with the Bulls for now. Caution should be exercised up here and a close eye kept on the levels mentioned above.
Indicators in Play
The Adaptive Moving Average uses two constants based on a fast EMA (short look back period) and a slow EMA (long look back period). The scalable constant, which has a range between 0 and 1, weights the AMA calculation between the two exponential moving averages by adjusting the constant.
Bearish Divergence is where the market is creating a higher high but the Relative strength Index is making lower highs. The Bear signal is confirmed when we breach the last dip marked with a horizontal line in this case at 55.68.
Summary
We are happy to buy dips to 976.5 but a close below here would see us exit. A close below 963.8 would see us reverse with more shorts being added if we see confirmation of the Bearish Divergence. Patience required though as top picking is dangerous.
David has been
analyzing and trading the worlds financial markets for the past 25 years. After an initial grounding with Mercury Asset Management and Warburg Securities he went on to set up his own brokerage operation in London. Since then he has appeared regularly on Bloomberg Television and been involved in providing analytics on behalf of some of the worlds major exchanges. He is also a member of the Society of Technical Analysts.
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