Back on July 18, I presented this blog suggesting that oil might find support around $44-$45
The chart presented on that blog was one that I have presented multiple times in the past – I am showing its updated data below. As you will note, oil blew through my suggested stopping point of $44-$45. The next point of support might lie around $38 – and failing that, a return to the January lows or somewhere in that price cluster around that time.
Should WTI hold above $38 and hook up, it would be in the process of making a head and shoulders bottom. A neckline of around $50 wold have to be cracked as confirmation of that bottom formation. I haven’t made notations on the chart to support this potential – it’s too early in the game to suggest that as a likely outcome.
We hold a total position of 8% in energy within our equity platform here at ValueTrend.
5% of that position was bought recently as noted on my Top Picks on BNN a while ago (Vermillion Energy). The producers are not yet being hit as hard as the price of oil. Perhaps that because there is the potential of this pullback being temporary.
As a trader, my main concern is to see $38 hold. If it does, I expect to maintain my energy position. If not, I will consider selling some or all out. Yes, the producers will lag behind, but I don’t want to wait for them to play downside-catch-up.
On the upside, if $50 is cracked, I will add to my energy exposure.
ValueTrend performance numbers
We’ve posted our July equity and income platform numbers here and here
Thank you for this analysis!
I’ve started two positions after yesterday’s rebound : $HUC.TO + $VET.TO. Now, the hard part: patience.
I find it curious that the late OIL pullback is generating less panic than previous pullbacks. Possibly because most guest appearances on media channels are saying that we’ll see WTI at 50-65$ within the next 6-12 months. As the saying goes, the market goes into the direction that causes the most pain, so I wouldn’t be surprised that 38 cracks and we see 28-29 again. So I like your strategy: let’s not gamble and buy too much energy here, let’s wait to see it get above 50$.
My wife bought me your book, which just came in the mail.
Thanks Matt–enjoy the book – hope it was “Sideways”–that is the book that is most appropriate to investors with a keen interest in TA.
Yes it is! Nice and short too, perfect for a new dad with little free-time.
The oil sector is definitely slippery.
On one hand you have people saying that US oil producers are cutting back, which should raise the oil price. On the other hand, every time US oil producers cut back, Saudi Arabia increases production, which should lower the oil price.
Plus there is so much oil sitting in tankers around the world, which have yet to be emptied, further enforcing the idea that there is an oversupply and oil prices have a definite top probably $50.
On the technical side you have lots of hedge funds which are playing in the oil sector, causing the oil price to go up and down.
My prediction is oil prices will be range bound between $30 – $50 for years.
So buy between $30 – $35, sell between $45 – $50.
You can also be aggressive and do shorting between $45 – $50 and buy-back $30 – $35.
I would probably avoid small oil producers since it is uncertain if they can handle the volatility. Also it is doubtful small producers will be bought up by larger companies because the larger companies don’t need additional capacity.
Canadian oil producers are further handicapped since our ignorant government and ignorant population, refuses to build pipelines to get our oil to market. We stupidly say we are a green
nation while we give money to foreigners for their oil, who for some of them use their oil revenues to build palaces and buy weapons. Now some nations use their oil revenue to payoff
the general population instead of using the money to expand their economy, causing more
future civil unrest and its resulting terrorism.
Watch the oil casino, continue to be played.
Good comment re the probable outlook for oil–I do think there is a potential for a range bound market–but as you note–if that happens, one can trade it.
And don’t get me started on the current unbelievably ignorant man-child PM, or the left wing movement in the US that pushed back on the pipelines. That’s an unrelated topic to the technicals so I’ll stop my rant here. But you may enjoy my epic rant from December on this very topic: https://www.valuetrend.ca/keiths-rant-some-animals-are-more-equal-than-others/
I noticed the VIX today making a new mult month low of 11.35. Is that indicating too much complacency?
Absolutely Dave–but there have been some instances of VIX hitting 10 or slightly lower before the poop hits the fan. Consider the current reading a heads up for potential correction, but not an immediate timing signal. That’s why I use it in the “Bear-o-meter” as part of the longer termed indicators I follow.
Hi again Keith,
My toddler is sleeping, so I can’t enjoy the sun like you probably are. So, I’m looking at the chart of Vermillion. I entered recently between 42-43 (similar price than yours). The 50 dma has crossed above the 200 dma (good) and volume has been (a bit) better than on the way down (good). The price is now sitting on a support level established in December 2014. Now, in October 2015, the stock hit resistance at 50, so my plan is to wait for $VET.TO to spend 2 days above 51.00 before committing more money.
Does that sound wise to you? Thx!
Matt–you’ve obviously been paying attention to this blog (and reading my books!)–yes, you have a good grasp on trading point entry and your plan makes sense–resistance is around $50 and that would complete a nice Head and Shoulders bottom-should it break with conviction–that would suggest much higher upside. We shall see.
Keith – oil held above $38 and now is close to $50 again. Would you be entering more oil positions when $50 cracks or waiting for a pullback of some sort first? If oil cracks $50, am I reading your chart correctly that you would be targeting the mid $60’s? Thanks again for your work – your articles are valuable continued education for me after reading your book. 🙂
Yes Jim–its the moment of truth for oil–it either breaks $50 and heads to $60 +, or it remains bound between $35-ish and $50.
My strategy was, buy one leg (8% of my equity platform) at $40, which I did. Next leg is only buy if it breaks $50. If not, you can trade that range.