First let me just start by speaking about the wild finish by equities closing to the PLUS side after what was shaping up to be another ugly close. Why mention this ? Because we saw CL (GC actually went into positive territory, though I stay away from this market) continue to correct higher in the post settlment session. Still, the 7225-7245 level now becomes a very key area to watch for CL. While I don't have a chart to post, I can briefly describe that a break down and close below the 7245-7240 level does open the door for a larger move lower to the mid-lower 60s. That is strictly technical, based on the possible formation I am seeing on the daily chart. In fact, the support found last Friday (7243) and the subsequent rally and failure (7804) was almost perfect. Then came yesterdays break lower, so we need to see IF this 7200 level continues to fail.
However, now to cover the CLH vs CLHJ and the spread di we have seen in both directions of late. This is where this becomes tricky. After the strong positive spread di we did see for about 14 days, we saw the nice bounce up to 7804. This was key because IMO it failed where it had to despite the persistent positive spread di. Also, on that move higher, we began seeing negative spread di. This raised caution signs. I did not, however, add any call sales and IMO that was a big mistake. NOW, we saw the big RED day Thursday, and IMO the break below 7245-7240 was only a matter of time. Now we have CLH -579 in two days, but CLHJ +11 and CLJK +19 in that time. SO as Barefoot says, its hard to get bearish. This is also why, if you have the knowledge (and it is an everyday learning experience) of options, this is where you can get involved and depending on your strikes, being either less aggressive or more. Based on the overall volatility we are seeing across most markets, that is where the challenge lies. Which strike to begin with ?? I tend to be less aggressive than Barefoot, but I am more of a futures trader. I will say that a grea deal of what I learn in options has come from the guidance of Barefoot.
From a futures standpoint, I trade CL futures every day. On an intraday basis, I use alot of intraday technical analysis, but I am always mindful to what is happening with regards to spreads, spread di. Similarly, trading KC futures, I am always aware of the current KC indicators.
Just wanted to give a little background. Now there is no short answer on the length of spread di vs outright price. Again, very tricky and requires alot of HW and discipline. I will say that once we enter day 12 (persistent), I will trade less intraday and rather try and hold a futures position in anticipation of the impending turn around.
I will also say, as I have said many times, electronic trading has changed things, and the OVERALL ECONOMY needs to be a focus. There is easy access to all markets on any ONE trading screen and I honestly feel that we see many momentum moves across markets that in the past would strictly move on their own fundamentals/technicals.
Something happened Thursday and feeling of doom and gloom carried into yesterday and we saw major sell-offs and major key technical levels broken across many markets. This is not coincidence. How many times do we now hear Barefoot say "Coffee is not Coffee" or "all markets GREEN/ all markets RED". Rumors of hedge fund liquidation, that were later denied on Thursday. Still these large funds (often LONG ONLY) hold positions across various markets and if indeed a liquidation was to occur, it would affect many markets. SO I feel it is important to always be mindful of the overall economic climate from day to day.
There is alot of work to be done day in and day out. Adding options to ones plate requires even more HW. But it is a rewarding experience (always keep the discipline). These indicators we mention on the forum are very important - but as you sometimes see me post, "despite the indicators" sometimes you can feel when some outside force may be at work within a certain market(s).
My answer may be a bit confusing, but I hope some of these points can be digested. The longer one tracks these markets and indicators within certain markets, the better feel you get for what may be on the horizon.
Lastly, I would expect to see a KC bounce on Monday (likely overnight) just based on the action we saw in CL/ S&P late Friday. Need to do some work before I comment on the KC indicators, but OE approaching on Wednesday should keep this market volatile.
gt.