Technical Analysis

Let’s talk about market analysis and #technicalanalysis. Some live by it, some hate it. There are multiple ways to analyze a chart, and numerous elements and ideas can be cultivated to find one's “edge.” Gurus abound, with Discords, YouTube channels, and WhatsApp groups teeming with experts each touting their own unique methods.

Warren Buffet once said, “I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer." This interesting take, combined with his success, might lead some to assume that technical analysis is useless. Buffet’s old-school, simplistic approach to assessing a stock or a company has a proven track record. Does this mean TA should be discarded?

Consider some counter examples. Paul Tudor Jones, founder of Tudor Investment Corporation, is known for his macro trading and extensive use of technical analysis, famously predicting and profiting from the 1987 stock market crash. Martin Pring, a renowned technical analyst and author of "Technical Analysis Explained," has had a long and successful career applying technical analysis to trading and investing. John Bollinger, creator of the widely used Bollinger Bands, has successfully applied his technical analysis tools in his own trading and investment management.

These examples show that technical analysis can be effective. However, it must be combined with other data points. You can have all the indicators, trend, and volume plotted to perfection, but unexpected events like geopolitical tensions or significant corporate earnings misses can still disrupt the markets. The world revolves around two major nodes: the USD and oil. Neglecting these in your analysis could be problematic. Energy issues lead to GDP problems, which lead to reduced demand, which can lead to fewer jobs, deflationary conditions, and social disorder. This is an oversimplification, but the importance of factoring in worldly conditions to your analysis must be considered.

With that said, let’s look at Brent Crude. There are a couple of psychological framings to how you look at a chart. We'll label these approaches as Team A, support and resistance, and Team B, institutional order flow. Neither is right or wrong in my opinion, and both approaches should be applied when necessary. It’s important to remember that most of the markets are using high-frequency algorithms to generate volume and "market orders." Retail investors do not influence price movement significantly. SEC Chair Gary Gensler himself has admitted to this. What you see as volume on a chart is often just algorithmic trading. Not in all situations, but most. I'm not an expert in this area, so feel free to correct me.

Back to Brent…

?Daily Time Frame: Team A, Analysis

Resistance - Strong resistance at the $85.0 range. As of the 24th, that resistance has flipped to support with a close above at $85.161.

Trend -Bullish for the last 13 days, making higher highs and higher lows. RSI trending above the midpoint.

Bearish Signal - If the price moves below the $85.0 support and closes, it indicates a bearish sentiment.

Daily Time Frame - Team B Analysis

Break of Structure At $85.06.

Liquidity - Look for where current buys and sell stops are placed.

Institutional Order Block - Identify the order block responsible for the break in structure at $82.56. Look for a return to that range.

?Both analyses say pretty much the same thing, but neither specifies timing. Often, you’ll see some consolidation after big breaks in structure before trending bearish or bullish. The timing of the moves is crucial, but predicting it precisely is challenging.

What Can Be Done?

Start stacking data points. Check out the CME options open interest. Look at the supply and demand of parallel energy sources like coal. Despite its unpopularity, coal still has utility. If the demand for coal is trending upward, you can likely assume high energy demand overall. Look at the operational status of ports and the levels of domestic production and exports. Many factors can improve technical analysis, and it should be done in conjunction with other key stats and metrics.

Till next time… #market, #oil #trading