Flipping the Book Long Crude

Ian Culley
August 24, 2022

From the Desk of Ian Culley @IanCulley

I can’t think of an area of the market we like more than energy.

Both energy stocks and commodities held up better than their peers during the recent bout of selling pressure. And now that they’re starting to reclaim key levels, we want to put our bullish bias to work.

I recently expressed my growing unease with a short crude oil position, given the mounting bullish evidence in energy. So, let's talk about how I plan to flip the book long crude oil futures on a break higher.

Here’s a continuation chart of crude oil rolled based on volume:

Last week I shared the following:

Every day it holds above its October pivot highs near 85.50 is a day I don’t want to be short crude oil.

While it’s only Wednesday, crude not only holds above those critical pivot highs but is also retesting the breakdown level marked by the lower bounds of its former range.

Now the trade is starting to dig into my pocket, and I have no business being short.

But, before my developing bullish outlook turns actionable, I need to see a daily close above 94.25.

If and when it does close back above the former breakdown level, here’s how I want to express it…

Instead of trading the most active front month contract (October), I like the setup in the December contract:

It has a well-defined level to trade against, and it gives us a little more time before we need to roll our position. If it’s triggered, of course!

Our line in the sand is marked by a key retracement level and the pivot highs from late July. Let’s call it 94.60.

We want to buy strength on a break above that level with an initial target at the June highs of 110.78 and a secondary objective of 127. Of course, crude needs to close above our risk level on a daily basis.

This trade is no longer intact on a close below 94.60. It gets messy below that level, and we’re best served by staying away. Remember, the name of the game is risk management and preserving capital!

Even in the off chance that the continuation chart closes above our risk level before the December contract, I’m waiting for a decisive breakout in the contract that’s actually traded.

It’s simple. We’re long December crude if and only if it’s above 94.60. That’s it.

And as far as the broader energy space is concerned, I can't help but imagine what oil & gas stocks are doing if crude is squeezing higher. It sounds like another bullish development for a space that is already exhibiting strength. We like energy a lot here.

That’s it for today. 

Thanks for reading. As always, let us know what you think.

And stay tuned for more actionable trade ideas from energy names and commodities in the coming days.

Allstarcharts Team

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