Oil looks ready for a bounce

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.

WTI Crude Oil Chart showing resistance and support levels and current trading range

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.

WTI Crude Oil chart showing Bollinger Bands, Stochastics, and RSI

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.

iShares Capped Energy ETF - XEG - chart showing potential for 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.

 

Energy stocks are approaching book value - potential for WTI crude oil to bounce WTI Crude oil - chart showing options traders are betting against energy stocks - a contrarian bullish indicator

 

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.

9 Comments

  • Keith, IBB is breaking out, looks interesting …. have a nice weekend.

    -Bob

    Reply
  • Why at low price USA keep drilling and rise inventory at low price? Do you think they think future price will be higher? or this is just politics relation with Soudi and Russia. In my understanding when price was $140 for oil, and USA never take any action. In oil trading more politics than actual supply/demand?

    thanks

    Reply
    • ‘Tis not for a Technical Analyst as myself to answer that sort of question SP–I’m just a simple guy trading the crowd-behaviour and price trends! Oil in particular has so many moving parts its difficult to blame any one element for its price pattern. So too with currencies, BTW. Very complex reasons for its movements–better to just trade the charts without worrying about the “why”!

      Reply
  • Nice blog Keith , I just got some CNQ for trade . Do you play any high torque oil service guys or just large producers and ETFs ?

    Reply
    • Taking a macro view as I am, I .,ike the ETF’s–having said that, I have two oil drillers and expect to sell at or near WTI $47

      Reply
  • “OIL: IT’S CERTAINLY NOT A PRETTY PICTURE. THE M.A.C.D. IS WELL BELOW ITS CENTER LINE AND CONTINUES TO FALL AS SELLING MOMENTUM HAS ACCELERATED. THAT SUGGESTS A BOUNCE WILL LIKELY FAIL AT THE DECLINING 20 DAY E.M.A. ,CURRENTLY AT $45.47 PER BARREL”(…).

    (STOCKCHARTS UPDATE) 26/06/2017

    Reply
  • Keith – great call on oil. You mention that oil is in a channel. What would alert you to a move outside the channel? Would it be if price broke out of the channel for at least 3 days or something else?

    Reply
    • Jim–thanks–rather than guess if and when a breakout would happen, its best to work with what is happening right now. All you ands I can say is that we have identified a trading range that can be worked with for oil. If/as/when that range is broken and if prices stay above or below the respective top or bottom lines by at least a couple of weeks – (I prefer 3 weeks)- you could say that we may be entering into a new trend. Until then–its best to think of oil staying in the range and trading accordingly.

      Reply

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