WTI crude oil has been trending up since its trough low of mid 2016. At one point that trend looked to be in danger. The market looked to be cracking in mid-2017 as a price trough of $42.50 (from late 2016) was tested along with a break of the 200 day SMA. Despite the scare, the trend remained as that support level proved to hold. This illustrates why the ValueTrend way of waiting for a crack of the 200 day (40 week) SMA and lower low on a weekly chart must both occur before a trend change is verified. Successive higher highs and lows on the weekly chart ensued later in 2017, along with an intact 200 day SMA. This verified the trend.
Something we need to keep an eye on should we hold energy in our portfolios: Oil’s most recent pattern appears weak – we haven’t seen a new high since July. On the other hand, the most recent trough on the weekly chart at around $63 is not yet violated. Should $63 be taken out (recall my 3-bar rule to confirm a definitive move vs. a spike) – and the 200 day SMA be cracked, that might indicate a Head and Shoulders top—note the recent low shoulder on the left, a high head. That, and what might be the start of a lower right shoulder – unconfirmed at this point. At this point, my notations on the chart are strictly conjuncture. The conditions for a true H&S top are NOT YET in place. So don’t jump to any conclusions, please. I merely painted a “what if” setup secenero on today’s chart. The trend remains in place at this time.
Conclusion: Watch to ensure support remains in place–if it breaks…you may want to reduce or eliminate your energy exposure, but that day isn’t here yet.
Seasonally, oil tends to see prices peak in mid-September and then decline into December. If you observe the equity clock chart you might measure the average decline over that period as around 6% or so. For this reason, we have maintained a fairly skeleton level of energy holdings in the ValueTrend Equity Platform – at approximately 4% of our total portfolio. We might expect to reduce or eliminate that as September rolls to an end, especially if the trend breaks per my observations above. We are not taking action on this trade at this point. But we’re keeping an eye on the trend.