Traders, not investors, might be interested in the chart patterns for WTI oil right now. The chart below shows us that crude has been range bound since early 2016. When crude hits around $42, it has bounced off of that level and moved up to anywhere from $47 to $54. Not a bad trade. Technical patterns and fundamentals (supply demand) seem to suggest that WTI crude will be stuck in this range for a while.
If we look at the short termed signals below, we can see that oil is playing with the lower Bollinger band line. Further, the neartermed momentum indicators RSI and stochastics are oversold and hooking up. These indicators provide further evidence that oil may once again bounce off of its $42 support levels noted in the above chart.
The oil producers, as illustrated by the iShares Capped Energy ETF, are also very oversold. The chart below shows us similar positive indications for an oversold bounce.
Sentimentrader.com notes that the put/call ratio for the energy sector is at a traditional “buy” signal level, as is the Price to Book level for the sector. Charts below.
All in, oil looks like a good risk/reward potential for a short termed move. The bigger picture remains range bound, but neartermed traders might want to consider a trade from current levels to $47 or so. Setting a stop loss at $41 (below support) and a target of $47 gives you about 3:1 risk to reward ratio from current levels. If you don’t like to trade the commodity (which can be done through commodity ETF’s such as those offered by Horizons HUC-T) you can trade the producers via an ETF or an individual stock.
Please note that there will be no blog on Monday June 26 as I’m out of the office. I expect to post my next blog Tuesday June 27.