WTI had a sharp rally over last week from a low point in the $28 area to over $33 by the end of the week. I have been referring to the potential of a rally, or possibly even a bottom on oil over a number of recent blogs and media writings lately. From a disciplined point of view, we never want to catch the proverbial falling knife of a declining security. It is best to wait for any stock or security to base and ideally, break out of the base before becoming too convinced of “a bottom”. At this point, the action by crude oil is encouraging, but I do not want to jump to the conclusion that now is the time to back up the truck and buy. There are a few points of caution to observe:
- Significant resistance comes in for WTI at the 10 week MA. This line coincides with a resistance zone at around $35 – $38/ barrel
- Traditional technical analysis suggests that WTI is still quite entrenched in a bear market. Lower highs and lows, and a price below the 40 week (200 day) MA point to this reality.
- Cumulative moneyflow (bottom pane) and moneyflow momentum (top pane) are bearish
- MACD is not showing positive movement at this time. It is a better indicator for longer termed price movements.
On the positive side, RSI and stochastics – which are relatively faster moving price momentum studies – suggest an oversold bounce could continue. Perhaps the stopping point for that bounce will be the above mentioned $35 – $38 area.
Seasonally, oil can move from around February into the spring, so that’s encouraging too. A break through the $38 zone would be positive for a longer termed trade. However, “V” bottoms rarely occur in oversold markets. Thus, the more likely scenario for crude is to bounce up and down for a while before the true bottom can be identified. As the technical points listed above suggest, I might guess at a temporary lid of $38 for that trading zone. A break out of some type of complex up/down formation and through the $38 lid would be indicative of a market bottom. Meanwhile, traders looking to play oil should view it as an oversold bounce trade rather than a longer termed trade until such an occurrence.
Thanks for keeping us updated & informed.
Just emailed BNN Q re ipl.
Will read this entry tomorrow.
Happy Trading Week
Hi Keith, really timely to get your views on oil here. Thanks.
Can I ask about HDGE, you were discussing last week. On the daily chart for HDGE, could the past 8 trading sessions qualify as a “handle” on a “cup” that starts late August (or late Sept)?
I’ll email the question in to BNN if you like, if you’re interested in discussing on air (but I won’t personally be able to tune in to see the show).
Thanks for any ideas.
After posting about the possible cup and handle in HDGE, I took a look to see if there’s an inverted cup/handle in SPX — I can see it, but maybe only because I’m looking for it. Cheers.
The HDGE chart does look like a H&S bottom potential–not so much for the S&P
So tired of analysts on BNN saying buy and hold is the way to go in a market like this. And then when they come to review their past picks they shrug their shoulders and say hey it’s a tough market. I would suggest it’s even tougher when you ignore technical breakdowns.
Thanks Dave–yeah, its tough to talk about your top picks breaking down on the show, but a discipline is a discipline. Breakdowns must be sold. It is the single factor that has allowed me to consistently show lower volatility during downturns. Holding and hoping the stock returns can be OK in an uptrend – but my view is that we are entering into a downtrend for the next little while. No sense riding the losers to lower points!
Thanks Keith for sharing this. Now that crude has dropped below $30 a barrel today, do you see it dropping further and if yes, what support level do you think would provide a possible bounce? I have read your book and found it such both informative and easy to read for a novice investor such as myself. Please let me know if you have any other advice as to how to gain more technical trading skills – e.g. would you suggest courses vs. just reading books?
Hi Jim–thanks for the comments. Glad you like the book(s).
I don’t really know the support levels for oil yet–although there is some potential that last weeks “$27-28” price may be it. I’d like to see a consolidation for a few weeks where it stays over that level before I consider buying. Bounces up and down with a floor that is tested a few times are actually positive–we want volatility–we don’t want a continuation of a downtrend. So lets see if we get some sideways noise for a while.
To learn more about TA–Join the CSTA –I don’t know where you are located, but they have chapters in every city. I am speaking in Oakville at the CSTA chapter meeting –here is the excerpt from the ValueTrend homepage re that engagement:
Next seminar: Oakville, Ontario: for the Canadian Society of Technical Analysts
Wednesday February 10, 2016. 7:00pm. Admittance is free for first time CSTA attendees.
Location: Queen Elizabeth Park Community and Cultural Centre -2302 Bridge Rd, Oakville ON L6L 3L5
If you would like to book Keith to speak about technical analysis or portfolio management techniques, please contact Cindy McIntyre at [email protected] or call 1-888-721-8736
What ETF do you recommend a Canadian investor to buy for oil so that we are ready to catch the countertrend rally on the upside?
USO is the most liquid Oil ETF in the world and trades very close to spot price equivalent–an ideal shorter trading instrument, but its in USD
For longer termed outlook, should you be looking at more than a shorter trade–Horizons has a winter contract ETF–I believe its hedged for us CDN investors, and it is a little less “whippy” given the longer contract–however it is very thin – no a great short termed play. I think its HUC-TSX, but look it up on their site to be certain.
CHART RECENTLY SEEN:
25 FEB. 2016 $WTIC AT $33.08
MA (20) MONTHLY
TIME SPAN: 1982-2016
1- MAJOR SUPPORT/RESISTANCE AT $25.00
2- FINAL LOW BEFORE COMMODITIES BULL MARKET ($17.12 IN 2002) + ($17.72 IN 1992)
3- PREVIOUS FINAL LOWS ZONE ($10.65 IN 1999) + ($9.95 IN 1985)
4- 12 JANUARY 2016: VOLUME REACHING HISTORICAL EXTREMES
WHAT IS YOUR TAKE ON THE OIL DIRECTION? WE NEED INFORMATION TO ASSESS THE $TSX DIRECTION (AND AUSTRALIAN MARKET AS WELL)
I’m waiting to see if oil breaks through $35 before getting too excited