Will the Downtrend in Oil Continue?

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1:09WILL THE DOWNTREND IN OIL CONTINUE? Welcome to Real Vision Daily Briefing. It's Tuesday, November 7th, 2023. I'm Ash Bennington, joined today by Dave Floyd, founder of Aspen Trading Group. Dave, welcome back to the show. Always a pleasure to have you with us. DAVE BOSTON, Yeah, thanks a lot, Ash. I really do appreciate it. Excited to have you here. A quick note before we get started for all of our Real Vision members. We've rolled out the new Real Vision 2.0 platform. You can join us there at realvision.com forward slash new. That's realvision.com forward slash new. Check your email. You'll have access in it there.

1:46You can click on the link. There's some really amazing and cool new features I've been playing around with. It's pretty awesome. Dave, let's jump right in. And we started the show off asking this question about the downtrend in oil. Big picture, where are we there? I know you've brought some charts. MARK BLYTHIER, Ph.D.: Yeah, I mean, I'm going to show the chart of USO, which is the ETF. I don't trade oil futures, just not anything that's usually been in my stable of products. But I certainly keep an eye on USO, probably a little bit more accessible for most viewers and most traders and most investors.

2:22I've actually been bearish on oil, even at the height of the whole situation in the Mideast. And again, it's not to say that, oh, look how good my forecast was. But I think it's more a function of trying to approach markets without the emotion and without the subjectivity. And that's where I find the real value in charts and price levels, because they kind of cut through all that. They let you know what the market's actually doing as opposed to what you think the market should do. So yes, I am bearish oil. USO has been at 75.20 a couple of times, which has been like a downside target. We're below it today.

3:04We blew right through it. And we're sitting right at the next level that I thought it would get to, which is right around 71.72. We might pause there for a little bit. But I think we're ultimately heading down towards 65 on USO. May not be a one-way train. It may take some time, but I don't see any reason to be long oil here absent some geopolitical shock, which, of course, we can't forecast in advance. Right, almost by definition. Dave, walk us through what you see there on the chart and what gives you the sense of where that support and resistance level is on USO in your view? Yeah, I think when people look at these lines on the chart, it can be a little bit confusing.

3:44It seems very compartmentalized. You know, what is the color designation? And I think, you know, giving a little bit of an overview of kind of how I'm framing the market would probably help quite a bit. Again, I want to focus on being objective about my analysis. And what I mean by that is I want the market to kind of tell me what it's doing, planning to do, and, you know, what it will do once certain things are met. So the only way I can think of to do that is to use readily available market information, which is price, volume, and time. Anybody has access to it. There's nothing proprietary about it.

4:27And for me, it's all about locating areas in the market where there's been a lot of price persistency, i.e., trades, the amount of volume that took place at those, frequency of trades, and then under which time frame. Is it a relatively short time frame? Was it over a longer period of time, really long period of time? So that gives me kind of a mosaic of how long that price has been persistent at. I look at that as really, really straightforward. That's giving me levels in the marketplace where prices are likely to have a reaction. So when the market gets to those levels, it's probably going to either blow right through it or more likely than not, the market will pause for a little bit and give us an opportunity to evaluate what we do at that price level.

5:17So it takes my view, my subjectivity completely out of the equation. So everything that you're looking at on the chart right there is simply a representation of different price levels that represent different look back periods, each one successively longer, therefore more important. They're simply color-coded for ease. So let's walk through what some of those numbers represent. Is that a Fibonacci retracement sequence that we're seeing? What are the baselines for those numbers? I guess not because it's asymmetric. Yeah, no, they're not Fibonacci. Again, the levels are simply a calculation that's done on my charting software that takes into consideration where trades have taken place at a high frequency, high relative volume over a specified period of time.

6:09So it just gathers that information and spits out a value. So yes, it's based on an algorithm that goes back and calculates all that data and then simply plots it on the chart. So all that's basically telling me is it's kind of like a footprint, for lack of a better word. It's a footprint of here's where, like for instance, 7195, that's a purple line. That is the longest look back period that I look at. It goes back a very long period of time. That's telling me that a tremendous amount of volume and trades took place at that level over a long period of time. Therefore, you have to be attentive to that level.

6:48The market's not going to ignore that because there's a lot of history there. So that's how the levels come about. So it's a volume-weighted price over a given look-back period that suggests to you, depending upon whether it's above or below the line, that it's a support level or a resistance level. Yeah, I guess I should have asked you to come up with a much cleaner phrase, and you certainly did. Well, that's why you wrote a book, so close to you. Yeah, definitely not me. You're the expert here, Dave. But tell us, what kind of look-back periods do you look at, and how do you calculate them? Or is it just strictly a volume-weighted sort of basis where you let the look-back period be dictated to where the prints took place?

7:25No, the look-back period is based on, I guess, trading style. I want to have a short-term look-back period that's going to give me some recency, medium-term for some swing trading, some medium to long-term, and then longer-term stuff if you're a portfolio manager. Now, granted, the levels are agnostic, meaning that the market's going to encounter these levels and likely have a bit of respect for them, meaning the market will do something around those levels. Naturally, the longer the look-back period, the more significant it is. The only thing that changes is that the look back period can adjust based on volatility.

8:06If we're in a really volatile period, I might shorten up those, not I might shorten up, the algorithm will shorten up those look back periods just to give more fresh information that's relevant to what's happening currently. So the look back period, I think, is actually quite significant because it allows you then to factor in where are we now relative to where we were in the past. So if we're coming into a purple level, which is the longest look back period, anything below that level is pretty bearish because you've broken down through a support level that looks back a long period of time. And talk to us a little bit about the discrepancy.

8:51I mean, one of the interesting things that when you look at this chart, you see the levels seem to gap broader or wider on the downside than to the upside. What does that suggest? You see, it seems as though they're more clustered. It's an asymmetric distribution. It might just be in this particular instance. But that just might be the instance in this particular instance. When we look at some other charts, probably won't see that same thing because it has really nothing to do with upside momentum or downside momentum. It's just based on where prices have been in the past and then plotting them with a historical lookback period.

9:32And I think the other key thing that is what's really helpful about these is that if current prices are below a whole cluster of longer term resistance levels or longer term support levels, that gives you a sense of what the overall strength of the market is. So if price action is obviously above a cluster of these levels, that indicates that obviously there's a strong market momentum. And again, I'm stating the obvious here. But again, it's just one of those other little things that kind of weighs on what you do on a day-to-day basis. If you're getting short, let's say I wanted to get long USO because I saw an intraday pullback.

10:12Well, that's perfectly legitimate. It doesn't mean I can't make a trade. But if I take a quick look at the chart, I know that there's a ton of overhead resistance Therefore, I don't want to fall in love with that trade. There's probably limited upside, but it doesn't mean I can't navigate in and out over a day or two because price action indicates that. But it also keeps me from getting too in love with the position and not losing track of the bigger picture. RAOUL PAL Yeah, once again, as always with trading, time horizons are key to understanding anything about how you're going to position yourself.

10:44Dave, you mentioned, I know you brought some other charts here. One of the other things I'm interested in talking about is S &P 500, obviously, something that a lot of folks are watching. Let's pull that chart up and tell us what you see there. Well, it's interesting. I know you guys are going to play a clip at some point from another guest who was approaching it more from a macro standpoint, but I would 100 % agree with his findings. This is really quite interesting. Everybody's been a raging bear. And then we put in this really, really solid rally over the last week. And that's just kind of how cruel markets can be.

11:18It was easy to be bearish. There was a lot of things on the horizon that suggested the economy was slowing. But again, if we go back and look at the markets as a discounting mechanism, that was old news. But what's important now is now what? We've had a big rally up. I don't want to be bearish per se, because there's no evidence to be that way just yet. However, we are coming into a pretty key resistance level, as you can see right here, and about$4409. Put on my glasses here to get the exact level. Yeah, but$44,$4403, pretty big resistance level. So one of the things you want to be aware of, regardless if it's these levels or any other price levels that you want to use, is that you don't approach it from the standpoint of blindly selling into resistance and blindly buying into support, you want to take the temperature of the market.

12:14And right now, there's no reason for me to say, oh, I'm going to be bearish into this level. Now, I may end up missing a great trade. We could wake up tomorrow morning and the S &Ps are lower. Well, so what? That's in the long run, in my view, a poor and sloppy and lazy way to approach trading. If I know that that's a resistance level, I need to wait for the market to start to break down, start to look for other things that are going to complement that. Maybe the volatility index starts to rise. Maybe some of the tech stocks begin to break down. Then I'm much more inclined to sell into that resistance level.

12:56But until that is proven otherwise, I'm just looking at that going, OK, I got a possible trade here, but the conditions aren't right for it just yet. We're going to take a quick break and be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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14:15Well, you know, Dave, you mentioned the conversation with Andreas Steno-Larsen that we had on Real Vision, who also sees some bearish signals on a technical side from the S &P 500. Let's take a look at that conversation. So let's have a look at the development in equity space from a technical standpoint in chart number one on this week's slide deck. If we look at the S &P 500 from a technical perspective, and it's not necessarily my thing to look at technicals, but I think it's so relevant here since we've had a couple of similar rallies over the course of the late summer and early autumn. And as you can see, we've been trading this channel downwards.

14:56And given the sort of reluctance to price equities higher here over the past 48 hours, roughly, I tend to think that this looks like a technical setup bound for a reversal lower again in equities. And I also think that technical picture rhymes with the more fundamental picture for the US economy and for the US yield curve. Well, as Andreas just said, quote, I tend to think that this looks like a technical setup bound for a reversal lower again in equities. And then he follows it with this, which is interesting. And I also think that the technical picture rhymes with the more fundamental picture for the U.S.

15:36economy and the U.S. yield curve. So what Andreas is saying there is he sees a technical setup to the downside, and he also sees that being supported by a broader, more fundamental downside bearish sentiment. Yeah, I mean, I completely agree with that. And I think to be effective in the marketplace, you do have to take in other inputs because it does matter. But you have, at least in my view, as a shorter term technical trader, I want to keep those on the periphery. I want to be aware of them. I can't be blind to that. But the way I look at most analysis that people do is that, Yes, that's great analysis.

16:14But until the market collectively agrees on that, it's just your observation. And in order to get prices to move in any significant manner, you've got to get the whole market behind it. And that's why I'm trying to approach it on a day-to-day basis as objectively as possible. And if I can know where price levels are that have historically been active, that to me gives me the better odds of success. So are we going to go lower from here? Well, it's entirely possible because if you look at the rally up off, actually, I take that back, not the rally, the sell-off from July, it looks as though you could have a completed correction given the magnitude of the rally since then.

16:56But at the same time, there's a lot of negative things on the horizon and we don't know. So rather than me saying, yeah, I am bearish because that seems like the right thing, I'm going to wait for the market to kind of give me a little heads up. I think what's important for the viewers to take away is that we're at levels in the market that suggest that we could be at one of those levels where you could start to build short positions. Now, conversely, if we go above this level and hold it, maybe retest it once or twice, then you got to be bullish. I mean, again, there's nothing wrong with changing your opinion because price action has changed.

17:37The market's always right. and I can't impose my will on the market. Yeah, extremely well said. Dave, I want to talk a little bit about the euro. My screen just blacked out. I don't know if you can still see me. But I want to talk a little bit about the euro. I know you've got some charts there. I do. And euro is a great, I think, a great example of kind of a dual timeframe analysis that you want to look at. And there's no doubt that the trend in the euro is clearly down. Yes, we were off the lows. But I look at that price action off of the November lows. Not the November lows. I take that back.

18:16Let me pull up the longer term chart here. Hold on for a second. Off of the October lows. And all I see right there is a lot of overlapping price action after a very clearly defined trend lower. So I'm just using classical technical analysis here. I'm not using levels. So I'm just looking at this going, OK, downward trend, i.e. bearish, very choppy, corrective move higher, hard to be bullish. But that doesn't mean that we can't find long opportunities on a day-to-day basis, week-to-week basis, but don't fall in love with them because the overall trend still remains down. Now, what I think is really fascinating is that we're at the upper end now of that one of those price sequence of prices, which is about 107, 107.25, right in that area.

19:10If we're going to reverse lower, this would probably be the level that that would happen from. I'm not saying that will happen, but it could happen. And if that's not dodging the question, that's just simply saying, here's a line in the sand that the market's clearly laid out for us. I haven't thought of it. I didn't come up with some clever trend line connecting dots and making a trend line to come up with this. Market's telling us this is a key level. What we do with it now requires observation. If I had to make a guess, I'd say euro is probably going to be going lower, given what the overall technical picture looks like.

19:48But again, I'm not going to get wed to that picture. We close above that 107.25 and hold it for a day or two or even several hours, for me, I'm happy to go long. I'm also happy to go short if it fails to hold above that, and hopefully prices then move lower from there. So again, there's always a scenario one and a scenario two you have to consider when you come to these levels. It's your job as a trader to gauge, what's the market telling me to do with this at this point in time? And unfortunately, that's a little bit where the art comes in, a lot of experience and feel. But you do gain that with time.

20:23It's hard to teach it in a simple formulaic equation or formulaic paragraph in a trading book. But at least if you're looking at price levels, you're going to keep yourself on the right side of the playing field, so to speak, and maybe minimize the damage as you're going through that learning curve. ED HARRISON Dave, let me ask you a question. Since you mentioned the longer-term trend, And for anybody who's followed this chart over the last 20 years, they know that EURUSD peaked prior to the global financial crisis, I think at just shy of$1.60. Let me ask you this. When you know that the broader trend has been secularly lower over a decades-long time horizon, you say, happy to go long, happy to go short.

21:07But does that inform your decision-making process that over time, the majority of the price action has been down on a secular basis? Or is that something that just gets filtered out as you look at it on a narrower time horizon? I agree with the logic. But I think going for me to go to a look back period that far back, then that loses the plot for me because it's just too far out of the realm. But what I look at, let's say, the chart over the last three months. OK, now we're talking something that's within grasp, something that's more relevant. Now, if you're a swing or to medium term swing position trader, and you want to look at the idea that you propose there, absolutely.

21:54I love that logic. I'm a big proponent of having a couple of timeframes. You have your execution timeframe. It could be a five-minute chart. It could be a weekly chart, daily, whatever it is. You should have a chart that's one timeframe higher as kind of your filter, kind of like your guardrail. It's like, well, I'm about to get short the euro here, but the next time frame higher is saying, hmm, probably not going to work. And that's a really, really effective way to kind of keep yourself from getting into trades and then going, oh, my God, I can't believe I didn't look at one time frame higher.

22:29I could have saved myself X amount of dollars. Yeah, so this is really interesting. So you're saying essentially one time frame higher, but on the time horizons in which you're trading, it doesn't really matter. The secular trend since 2008, you kind of filter that out. That's noise to you. It is. I mean, to put it in black and white terms, if I'm trading the S &Ps, I'm looking at one and five minute timeframes because I'm intraday trading them. Currencies, I might be looking at a 60 minute and a 240 minute chart. That's what I consider the next timeframe higher. I don't consider going from an hour to two hour.

23:01I go from a one hour to a four hour. That's what works for me. Maybe for some people, it's a one and a three hour. But something within the realm, not too far outside that time frame. So I think that's helpful. But again, going to that secular that you're talking about, if you're looking at daily and weekly charts, yeah, let's look at the quarterly charts. Absolutely. Right. Dave, do you basically come out flat at the end of each day, or do you carry positions over intro day? S &P's flat every day for the most part. If I do have positions in the S &P, I'll usually do that through options. So, just a lot less price volatility by doing it that way.

23:43Currencies, though, like the euro or yen, I can be in those positions for a few days, maybe a week or two. RAOUL PAL, Dave, we've got a lot of questions coming in. There's one from TrillionXMacro that I know dovetails with something that you want to talk about. TrillionX asks, any view on the gold chart? DAVE MCCLEMENOVICS Oh, yeah. Yeah, yeah. I really, and again, I'm looking at GLD. I don't trade gold futures, so I just look at GLD as the barometer. And since I don't trade it, I just need to use it as a reference point. I actually like GLD quite a bit here. RAOUL PAL, This is Spider Gold Trust for those wondering.

24:16RAOUL PAL, Oh, yeah. Sorry. Yeah, thank you. Again, using price levels, the market's telling me that this 182 level should be a pretty good support level. If you look at the chart off of the October lows, we've been straight up, which is great. And now we're having the first pullback. And if we're going to hold, I'd like to see us hold here. So there's a couple of different ways you can play that. There's no wrong way to play it. It's based on your preference and your risk tolerance. I've got plenty of clients and colleagues that they'll buy into that support level, have a stop underneath it. I happen to take a slightly different approach.

24:54I want to see how the market reacts to that level. Then I'm willing to play ball. There's no wrong or right. It's just preference. But the bottom line is, for me, 182 is kind of the heads up. Hey, there's an opportunity here. And you can either get short a put spread, you can go long calls, you can go long the outright, whatever. You don't have to give it much room under 182, though. It can be 180, 181. If it closes below that level and can't get back above it, that's your out. There's no reason to rationalize it any more than that, going, well, you know, once it closes below, the market's telling us it doesn't want to hold that level.

25:32Therefore, you're out and you're on to the next trade. We're going to take another quick break and be right back with more of the day's top analysis on the Real Vision Daily Briefing.