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August 28, 2016 | Duration Told Us and Symmetry is Telling us Oil has Bottomed

Jack has over 20 years experience in the currency, equity, and futures arena. He is an investment advisor who has held key positions in brokerage, money management, trading, and research. Jack is founder and president of Black Swan Capital LLC. He was also founder of Ross International Asset Management (specializing in global stock, bond, and currency asset management for retail clients) and General Manager of Plexus Trading (specializing in currency futures and commodities trading).


“Formula for success: rise early, work hard, strike oil.”

                                     J. Paul Getty

 Commentary & Analysis

Duration told us and Symmetry is telling us oil has bottomed

There are lots of decent rationales to suggest why oil prices have bottomed.  Rising prices for Permian Basin drilling properties would be one.  Inability of Iran to crank up production as fast as expected might be another.  China’s latest stimulus might fit.  But what got my attention a while back was the break of a major trend line coupled with our wave analysis.  What added confidence to a longer term bullish view was duration and now chart symmetry suggests more to go on the upside.

Duration is a simple concept (not the fixed income type).  And it’s easy to apply.  If you can count, you can follow duration.  No algorithm or fancy technical charting package needed.  I started following duration years ago after reading an excellent book by Woody Dorsey, titled, Behavioral Trading. Besides being an incredible analyst, Mr. Dorsey is a gifted writer; you have to love a book when the title of the first page of introduction is this: “The History of Markets Is the History of Human Error.”  Bingo!

“There are decisions in trend duration measurement that may seem equivocal….Mathematical models like econometrics are precise.  But precision, while always presuming to be righteous, is not necessarily always the most useful.  If we want to absorb the form or gestalt of the market, we may be willing to honor some abstraction over the ‘precise’ precision….Practical behavioral finance is not about mathematical models, which are the sole province of the purely rational.  It is about unleashing the intelligence of our other brains and dancing to the music of the durations.”

Woody Dorsey

Simply put (and this will be clear in the chart oil prices below), in bear markets the duration of the moves lower in price will be consistently longer than the moves higher; thus, defining a bear market means the trend moves (lower) take more time than the corrections (higher).

Now, in said bear market, what if we see a “correction” higher with duration much longer than normal (defined by the average length of recent corrections higher). Well, that should get our attention immediately; and especially if increase in duration occurs at a time when sentiment in extreme territory.  That is a flashing yellow light telling us that a trend may have changed—pay attention!

Below is a chart showing the duration periods for crude oil from late June 2015 through yesterday (Friday 26 August 2016). Editor’s Note: I shared this chart in a recent issue for Money Talks Michael Campbell’s Insider Edge in an article about finding the trend.  Mike is a friend; and one of the best global strategists you can find anywhere.  His Saturday Money Talks weekly radio show is brilliant.]

Crude Oil Futures Daily:

Key points from the chart above:

  1. After the trend low in oil prices was made in early February 2016, the duration of the move higher was 27 days; dwarfing the duration of four previous rallies of five, two, eight, and six days, respectively.  That alone was an indication maybe the trend had change.
  2. In the midst of that 27-day move higher there was a break above the long-term downtrend line going back to June 2015.
  3. There was divergence in momentum and the low in price was made on February 11th 2016.
  4. And you can bet the sentiment was pretty bleak for oil in early February 2016.

So in effect, the duration added confidence to our other indications the trend in oil prices had changed.  The intermediate term trend was higher.

Now, as you view the chart above, notice the symmetry.  The red dotted line dissects the chart into halves (the fulcrum).  Notice how the left side looks like a mirror image of the right side.  This confirms two important aspects of markets: 1) trend duration seems to be similar in bull or bear markets; and 2) price movement in markets is fractal.

So there you have it.  Trend duration and symmetry to help us spot trend changes; thank you Mr. Dorsey.  A powerful set of indicators we can all do at home boys and girls, all you need do is have access to a price chart and count.  Once again, it appears letting Mr. Market talk to us in his own language beats hanging our hats on the gossip of the pundits any day.

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And in case you don’t know this – I eat my own cooking; i.e. I take the same trades in my sport forex account as I suggest to you. [Note: We do not trade currency options for our own account at Black Swan Capital due to the potential for front-running as options markets can be quite thin.]

Thank you.

Jack Crooks

President, Black Swan Capital

[email protected]

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August 28th, 2016

Posted In: Black Swan Currency Currents

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