Oil is setting up

February 11, 201510 Comments

Below is the December 2008 – June 2009 daily candle chart for WTI crude. Note the similarities between it and the current pattern (see chart at the bottom of this blog) thus far. Note the big white up candles off of the $36 bottom in December 2008—about 7 bars ( business days)—then a ‘spinning top at $48. Following the spinning top– a big move down, followed by a meandering downtrend over two months (to February 2009). Oil ended right back down to $35. Now go to the new chart below this one.

OIL-2008

 

Below is a six month chart of the current oil trend. Its displaying a similar pattern to 2008 so far—7 mainly-up days –with fairly big white bars. Yesterday began to sell off (and it seems to be heading that way again today). It seems that we’ve got a similar pattern as in late ’08-early ’09. If so—I’d expect to see expect $45 on WTI again, perhaps lower. The main thing is that in 2008-9, as was  the case in 1998, and before that in 1986—oil always bottomed through complex bottoming process. The point is: No “V” market reversals for oil over the past 30 years. I covered the historic chart of oil on this blog: https://www.valuetrend.ca/history-may-show-us-when-to-buy-oil/

OIL NOW

 

Oil will quite possibly provide one of the greatest trading opportunities that we’ve seen in many years. Let the formation play its way out. Let the players (OPEC, Russia, North American producers, etc.) play their game. Soon enough, we may see one of those massively profitable opportunities that rarely presents itself – I for one intend to play such an opportunity aggressively. Patience will likely be rewarded.

Investors Digest, Canadian MoneySaver & Canadian MoneyLetter

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10 Comments

  • Thank you for this. I’m also very interested in energy and particularly Inter Pipeline. I haven’t seen as many lines ready to be crossed for some time. The 20, 50 and 200 day MAs are ready to converge with the price hovering just above. In addition, the primary trend line for 2009 has been breached and there is a symmetrical triangle. My favourite indicators are mostly neutral. So what is appropriate here? Are we looking at a possible sell? I have held the stock since November 2013.http://stockcharts.com/h-sc/ui?s=IPL.TO&p=D&b=5&g=0&id=p72177144359&a=324301570

    Reply
    • Fred–most pipe’s are down. But the longer termed charts show they are (barely) holding the trendline–thus so far all is ok. IPL needs to hold $30 (last low) to remain trending.
      I have 2 pipes which we bought 2-3 years ago. The ride has been fun. We expect a rally on the pipes if oil does what I think it will – upon which I will sell one of those 2 holdings just to reduce exposure. No hurry–they all pay dividends, and they are all on trend at this time. Watch for a break, though.

      Reply
  • “One of the greatest trading opportunities that we’ve seen in many years”

    — “Trading” opportunities or “Investment” opportunities? Do you see this as a long or short-term hold situation (once entered)?

    “I’d expect to see expect $45 on WTI again, perhaps lower”

    — Ergo may I presume you suspect most of the equities to have another leg down soon? Because I gotta say Keith, most of the names I’ve been watching since late December have had quite strong rebounds with little sign of re-testing their lows.

    Reply
    • Its hard to say what the equities will do–I am closely following WTI itself, and there will be some leverage one way or the other on the equities.
      History is my guide, and the last 3 occasions where oil tanked, it gyrated through a complex bottom before rising. Thus, if history repeats itself (and it usually does– John Templeton’s’ famous saying “This time is different are the 4 most dangerous words to an investor”
      To me – everything is a trade. But in oil’s case, it may be a multi-month trade. The big picture for commodities remains bearish: http://www.smartbounce.ca/commodities-are-trending-lower/

      Reply
  • Hi Keith,

    Looking at the performance of oil over the past few months, I have come across a stock – Energy Transfer Partners LP – (NYSE:ETP) that has held up relatively well throughout the drop in oil prices, maintaining its solid dividend with only a slight price drop. Now in reference to the rebounding oil prices (sometime in the not too distant future); how would you invest play a stock that has had a very solid price performance despite the recent downtrend? Also, would you be more inclined to play the oil rebound with an oil ETF index instead? Kindly advise

    Thanks for your always prescient insights

    Marco

    Reply
    • ETP is a natural gas pipeline company–so they are less levered to the price of WTI crude–hence their lack of correlation to oil
      When I play oil, I will own direct commodity ETF’s and energy equity ETF’s to play both sides

      Reply
  • Interesting that the time duration of the drop in oil from 07/05/2008-02/07/2009 to the most recent drop 06/14/2014 – 1/24/2015 are both approximately 32 weeks each. At least based on time analysis we may have already hit the bottom.

    Reply
    • Yes, I would think that might be the case Dave. My thoughts are we could see a test of the lows ($44-ish) — we’ll see.
      Good observation–thanks for that.

      Reply
  • Keith,
    i understand the mechanics of history repeating patterns but are we not to consider the immediate differences between today and history … i mean today its ISIL, europe QE about to accelerate growth, US on fast track, Japan leaving recession, and on and on … these differences alone can change historical patterns can they not … i enjoy your insights

    Reply
    • Bob–technical analysis is like fundamental analysis–all you have is history to work with. So in fundamental analysis, a stock might move to a price at a certain PE that it has historically gone to based on a projected rate of growth.
      Technical analysis works on the fact that although events and circumstances change–human nature does not change. We react through an instinct–driven by the limbic system in our brains (herding behavior, fight or flight, etc). Therefore, human reaction will be the same no matter what the circumstances. So the circumstances behind oils fall don’t have to be the same–our reaction will likely be the same as in the past.
      Having said that, all analysis–fundamental or technical–is a probability bet, not an absolute. So I am just “playing the odds” that the market will gyrate to form a bottom over a few months–that may not be the case, and oil might just “V” bottom. If so, we can look for an entry sooner rather than later. Current s/t resistance is $55. If that breaks and holds–you never know …

      Reply

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