Let's take a look at our USO OIL trade which for now only consists of a full short position on OIL. The topping process is well under way. Count back six weeks or six price bars in the weekly price frame (Link 1). Notice the week ended up, then the following week closed down in a big way lower than the three previous weeks. That it hugely bearish. The 52 week high occurred that week at 57.66, I doubt we will see that again before a break back to at least 50. Draw a line from the yearly high 57.66 to this week's high 54.32 and that defines a down trend. Now draw a line through the bottom of the price bars of the last three weeks (it won't be exactly straight) that defines an up trend. The price activity is trapped in the ever narrowing wedge. There is only one certainty, it won't stay there. Which way will it break? No way to know, with the stochastic turning up from under 50 it still has room to rise, but I don't think the gigantic already mentioned reversal (candlestick) will be easily defeated.
Now zoom in on the daily chart (Link 2). You can see a wedge forming all month long from 50 to 55. Again, this is a consolidation which usually has an explosive resolution. I don't believe it's explosive enough to break the old high of 57.66, which it must do for me to abandon the trade. Yet, if that's what happens I don't want to lose 57.66-54.32=3.334 points on a full position so I will buy 25 shares of USO if OIL breaks 55. If after that the USO breaks 75 I will buy another 25 shares.
Tops are not a point on a stock chart. A top is a process of money changing form the people who have made profits and now taking those profits and those late to the party who are going to get burnt, again. That's the general public reading the Wall Street journal and watching CNBN.
Link 1:http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=oil&time=8&freq=1
Link 2:http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=oil&time=8
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