The Trader Daily

 | Jul 14, 2014 | 7:30 AM EDT
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Due in large part to the generally choppy price action in oil that's persisted throughout 2014, I've opted to avoid the crude market over the past few months. That said, in recent weeks the contract has slid from near $108 per barrel to $100.50, and that move shouldn't be ignored. 

WTI Oil Futures -- Daily Volume Profile
Source: eSignal

The first thing to note on the chart above -- for West Texas Intermediate crude oil -- is that the price broke through its multi-month resistance in mid-June. Following two-plus weeks of consolidation and repeated back-tests of the prior resistance breakout level, roughly at $105, the market's bid softened and crude slid back down through the breakout point. In market-profile parlance, the price broke balance to the upside, but then failed to sustain the break and slid back inside its prior area of balance.

Upon failing to hold above the breakout point, the logical expectation becomes the price auctioning back down toward composite value -- roughly $100 at the time the contract broke back beneath $105. At that point it would likely test the lower end of composite balance, $98.75 to $99.25.

Keeping in mind that crude's primary composite balance area stretches from $99 to $105, traders on day time frames and generally shorter ones should begin looking for support between $99.25 and $98.40.

Long-time-frame traders, however, should remain patient. I wouldn't be surprised to see a downside break of balance that quickly gives way to an upside reversal, similar to the upside failure that occurred in mid- to late-June. Given this, higher-time-frame participants should consider stalking the long side toward the $96-to-$96.50 area. A weekly close beneath $96 would likely lead to further weakness, and that's not something I'd want to fade (i.e., buy).

The obvious caveat when trading crude is that frequent flare-ups, and the occasional ceasefire in the Middle East, can create unpredictable and sudden price spikes. Be sure to manage your risk appropriately in this market.

Additional Notes:

1. In a clear-cut example of how paying too much attention to things other than price can keep you out of a trade, buyers continue to ignore the negative news headlines surrounding General Motors (GM), and they are bidding shares higher.

Last week's narrow consolidation beneath the early-March swing high looks like a textbook bull flag for GM -- so, for now, the long side appears to be the right side. But a failed break above $38, and subsequent close beneath the $37-to-$37.20 area, would be an obvious warning sign for short-term participants. Those trading on a higher time frame should still consider something near $35.50, the mid-June swing low, for a stop-loss level.

2. Another multi-week long position, Baxter (BAX), broke decisively higher last week. In the process, it managed to attract the attention of the more momentum-oriented breakout cabal. Keeping in mind that we'd rather not see this stock close beneath the mid-May closing swing high -- at roughly $75.50 -- I still believe the $72-to-$72.30 area represents a more appropriate stop-loss level for the higher-time-frame participant.

Any trading- or volume-profile-related questions can be posted in the comments section below, emailed to me at or posted to my Twitter feed @ByrneRWS.

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