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WTIC oil chart
I’d like to start with oil itself. This chart is obviously mega overbought. Its a busy chart, and my apologies for the myriad of lines on it. But, follow along if you can. We have:
- A break of the very, very significant overhead resistance target that I recently projected on this blog. $110 has been tested and failed in the 2011-2014 period. Yes, we broke that level. But the breakout is young. It needs to remain over $110 for at least this week.
- The price of oil is now 35% above its 40 week/200 day SMA (simple moving average). I consider anything north of 10% as overbought, and anything north of 15% as a significantly overbought level. Please refer to my book Smart Money/ Dumb Money or my new Technical Trading course.
- RSI & Stochastics are well into overbought territory. Stochastics is already hooking down. Danger, Will Robinson!
- MACD has broken out bullishly (as I noted in my prior oil update), but it is getting into that overbought level too.
Pardon me, but do you have gas?
Natural gas has a substantially different chart than WTIC oil. Here are my thoughts:
- Nat gas has a long termed resistance lid that is being challenged of late. Surprise, surprise, this resistance goes back to the same era of technical resisttance of about a decade ago that challenged oil.
- It is not overbought from the moving average perspective. You can eyeball this in the look of the chart too–its clearly not in a parabolic pattern.
- Momentum oscillators look downright bullish right now – note the hooks coming off of oversold levels. Very different than oil. MACD (the longer termed oscillator) looks absolutely delicious!
- The pattern looks to be range-bound of late.
What about the producers?
As I have noted in past blogs, there may be some catch-up to do for the producers vs. WTIC oil. Particularly Canadian producers. The chart below shows us:
- The same level of technical resistance that was present in WTIC oil prices between 2011 and 2014 was there to frustrate oil stock holders. This time, unline in 2011-14, we have some room to go before that resistance is hit. The XEG chart suggests that level to be $17, and prices today are $15. So thats a postive point in favor of the producers.
- However, RSI, stochastics and MACD are pretty overbought. Yikes!
- Finally, the XEG chart is something near 28% over its 40 week SMA, and you remember my rule surrounding those levels noted in the WTIC commentary suggests 15% is too much.
As we noted in the ValueTrend Update newsletter, we have reduced our energy exposure from 13% to 10% of late. We may reduce it further if we see technical deterioration.
Consider the evidence presented above a heads-up for a likely correction in energy. Factors like the geopolitical strife surrounding Russia and inflation in North America factor into the equation. But the charts will tell us what we need to do. Of note, investors who have focused a bit more on gassy-stocks are likely to weather any potential pullback much better than the energy-producer stocks. As such, one might focus on oil-concentrated producers over gas- concentrated producers, were you to pare your holdings back at some point.