Oil may be a decent short termed trade

August 12, 20192 Comments

Crude oil has bounced off of the $50-$52 support level several times since late 2018.  It peaked near $66 back in April (which was an old support point in 2018). Currently it seems to have a neartermed resistance point closer to $60. Its bouncing off of that low-$50’s zone and looks to be heading towards $60 again. Will it go higher after that? Who’s to say? The China trade deal will have something to say about how China’s consumption of this commodity will project to the future. So I won’t make any bold predictions for oil’s upside – beyond a call to potentially hit $60 in the near-term.

 

The commodity is oversold enough to merit a rally. Traders with a shorter termed horizon can consider an ETF that tracks oil, such as OIL-US. It’s a fair bet that we might get very near that $60 target for oil. Or, they can examine the Energy Equity sector via something like XEG – or the individual producers. However, the technical damage seen within the producers has been much more severe than for the commodity itself. You will note that oil is bouncing off of its low-$50’s support, while the XEG chart shows us a significant breakdown in support. Contrarians might view XEG and individual producers within the group as the more oversold opportunity of the two. But it’s also the higher risk play.

For our part, we don’t hold much in the oil space, beyond a small position of one energy producer in our ValueTrend Aggressive Equity Platform. We may add to the trade.  If we do, we’ll likely look at direct exposure into the commodity. Again, it’s not a suitable trade for conservative long termed investors. So any extra oil exposure we consider will be strictly within our Aggressive platform – and not in our conservative growth strategy.

Happy trading!

2 Comments

  • Thx for this excellent analysis. Am resisting the daily temptation to average down on VET.TO given it’s dividend yield now exceeding 14%. It may be a year or 2 before Canada gets it’s west coast oil and gas pipeline capacity expanded although in the interim Vermillion derives 40% of it’s oil revenue from outside Canada so unless the price for Western Canada Oil declines drastically in the next year or two the monthly dividend should be sustainable. It seems that VET.TO is so out of favour with investment analysts that it’s price has been driven so low it is now a ripe for a takeover bid of some sort or else it is truly on sale at a huge discount to it’s true value? Any thoughts!!

    Reply
    • From a pure capitulation point of view, many of the oil producers may be a good contrarian bet. This type of trade can be very lucrative–but it is a riskier bet than a trending stock or sector. For what its worth, one contrarian analyst I like says he likes the energy sector for that very oversold reason. But, he is a very contrarian guy- and often, but not always, right.

      Reply

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