Yet again, another wild day in the markets with history being made – and not in the good way!
As the world reels from the Coronavirus and staging a huge rally in stocks, disaster strikes in the oil markets.
“Oil prices turned negative. Hundreds of US oil companies could go bankrupt” – CNN Business
Driven by an oversupply of product, an increase in storage costs, and a lack of demand—oil futures traded negative for the first time ever.
And while stocks have bounced off their March lows, oil seems to still be in a world of trouble.
Today I want to do something special.
I’m going to show you how using my process in the SPY can actually be applied to other products, in this case crude oil.
More specifically, I’ll explain to you which momentum indicators you can use to gauge whether or not the selling continues or if we see a bounce in crude oil.
Daily Deposits is a momentum trading strategy that is based on a unique blend of technical analysis and indicators.
Technical analysis is a tool used by traders to time and predict the direction of the markets.
And if used correctly, a trader could pull down massive returns in a few minutes of trading!
So… in order to successfully achieve these high returns, I have combined a set of indicators that can pinpoint explosive moves in the SPY!
In this special article, I’ll explain how this also works on the futures markets and was able to show signs of extreme weakness in crude oil.
Similar to when analyzing the SPY’s you want to gather as much information about crude oil before placing the trade.
There is a geopolitical tension within the oil complex that is causing production to ramp up and flood the market with crude oil.
Oil analysts have been observing the spread between the front month and the future month deliveries. Since WTI crude prices for future delivery have risen above the spot market, this forced contango, and traders are encouraged to store oil.
“The term structure of all crude benchmarks moved to a super contango in March, as massive oil demand destruction, significant refinery cuts and rising global oil supply were expected to create a large surplus in the oil market,”
These are extremely bearish outlooks being viewed in the crude oil industry.
Since all of the news is bearish in the energy space, finding a short trade could make a better trade instead of catching a falling knife.
So let’s take a look at if there’s a way the pre market analysis will let us into this trade short as a momentum trader.
Daily Deposits is based around a set of momentum indicators that were selected to identify market direction prior to the market open.
And recently, these have been put to the test in one of the hardest markets to trade in history!
The pre market analysis starts with:
- The global overnight outlook
- Sector review to identify strength in the US Markets
- Premarket momentum and technical analysis review on the SPY
When analyzing the premarket session there are two primary things you want to reference when determining the trend of the markets.
The two premarket trend signals are:
- The overall trend is positive or negative
- The moving averages support the direction of the trend
What noticed in the premarket session:
- The overnight trading session started with a TTM Squeeze
- TTM Momentum Indicator pointed to strong trending market to go lower
- 10 MA < 20 MA pointing to large negative price action
- Bearish VWAP cross, and price never got back to VWAP as it went lower
In the chart above you can see that using my pre market momentum indicators you are able to quickly identify the trend of the markets.
This massive trade was spotted by the system in the Trade of the Day in the pre market session.
Since all of the indicators are point to an extremely weak day, there is no reason to wait for a pullback of any sort.
So, the trade would be to sell the futures right at the Open ( or buy puts) and we would place an order to close for the close of day.
And by the middle of the day , the crude oil went negative and with low liquidity, the futures contracts went to 0 and all the way down to -$40 per contract.
This means that you would actually get paid to take delivery of the futures contracts!
While it’s not my typical application for my Daily Deposits momentum trading strategy, I wanted to share with you how you could harness its power and expand from the SPY to almost any market!
So remember – technical analysis is a tool used by traders to time and predict the direction of the markets (any markets!).
And if these indicators are used correctly – a trader could pull down massive returns in a few minutes of trading!
So… in order to successfully achieve these high returns, I have combined a set of indicators that can pinpoint explosive moves in the SPY and also Crude Oil!
Want to learn more?