Technical support at or around $38 is being toyed with by market players on WTI Crude as I write this blog. As you can see on the daily chart, we have not yet seen an indication of downside momentum abating. Stochastics, which is the fastest moving momentum indicator, is still heading down. RSI too. MACD is the one potentially positive beacon light on this chart – given its bullish divergence. That’s offset, however, by horrid moneyflow. Money is leaving the room, with little sign of early buyers stepping in.
If oil doesn’t stay in or around the $38 area, there is quite a bit of support coming in around $35. The long termed chart shows the 2009 lows at around $35 coincided with a level of technical resistance that had kept WTI capped from 2000 – 2004.
My thoughts are that we may just see $35. But that’s not to be known until evidence of a breakdown at $38 occurs. The brief break to $37-ish this week didn’t last. This is why I always follow a 3-bar rule—wait for a break, and then look for follow-up downside with at least 3 days of action. If a break lasts, we have greater confidence that the next support target of $35 is going to be hit. The same goes for buying. Wait for support to prove itself with at least 3 days of upside before buying. That’s a minimum, by the way. I often give it even more time to prove itself before making a commitment.
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Oil looks like dead money for the near future at least
Keith: I follow your blog closely. You are mostly invested and sitting through this soft patch, I expect. Conventional wisdom suggests a rally coming soon but once though the seasonally strong period of December what then? What will cause you to change course and raise cash? Or perhaps do you raise cash in all weak situations regardless of seasonality? January/February is often weak as well. As in past questions trying to understand how a professional thinks. Thanks and Merry Christmas.
Thanks for following Terry
Yes we are 95% invested. And yes, its just as “un-fun” for me as everyone when a pullback happens with full exposure. By the looks of things, the sideways market with its lid at 2130 (S&P 500) continues– I will expect a Santa rally for the last 2 weeks of the year. From there, I expect to begin rotating out of some sectors in early January
Wow, Keith! You were bang on, once again. Do you think oil will break the $35 support level?
Lorraine–we have to see. This is why I use my 3 day bounce rule (MINIMUM!!!)
If it doesnt bounce from around $35, then it may go into parabolic free fall. However, we should wait and see-this could be a pending opportunity.
West Texas Crude is hitting $35 today. There is a lot of fear and pessimism out there.
Fear and pessimism can be our friends!
Yes, that’s what I am hoping in the case of oil. I really like your three day rule, I did some reading on it and the psychology of it makes a lot of sense.
If the major support at $35 breaks, it looks to me like the next major support area is around $25. Is that your view as well?
Thanks and have a Merry Christmas.
The cool thing about having traded for 26 years is that you learn certain things along the way–and in the hard way. The 3 day rule came from my lessons learned on stop losses when I was a younger broker. I would stop out, then get whipsawed. So I started forcing myself to hold a break – up or down- for 3 days. It sometimes works against you, but more often than not saves you from yourself.
And yes, $25 was a neckline of a double bottom for oil formed between 1986- 1999. That would be next support zone.
Merry Christmas too!
About your 3-day rule, I try to respect that as much as possible but I often see (especially for commodities) that after three days the price has already reached the next resistance zone… Then I hesitate buying since I expect a rebound. If I buy then the price drops and I feel that I should have waited and if I wait the price continues to go move up and I feel I missed the opportunity. How do you deal with big moves within the 3 days?
Thanks, I love your blog and books
Francis–it happens–ie you miss moves or sell late when you use the 3 day rule
However, I have found that it tends to help more often than hurt- so I use it.
Keith will you comment about smart money activity on a regular schedule. Thanks
I bring it in when its at an extreme vs. dumb money
Thanks Keith for all of your due diligence and excellent analysis. Now that oil has fallen below the heavily supported $35 level, could you provide us an update on where you think we are heading next according to the technicals? One of the other replies suggested $25 being next, what needs to be true for us to see this? Is it time to head for the hills? 🙂 Thanks again for all your expertise and keep up your great work.
Xavier–I would suggest that $25 target is quite possible–in fact, I have outlined that as an ultimate target in my last blog on oil–should oil stay below $35 for more than a few days. One thing is for sure–now is NOT the time to buy–we need confirmation of a move back above $35, or a move down to $25. We’re in never-never land for oil right now–no way you can trade this without crazy risk.
Now that WTI has reached $38 as of Dec 24, are you going to apply your 3 day rule at the $38 resistance level before buying?
It looks interesting–but be aware that there is a seasonal tenancy for oil to rally the last part of December then fall in January. I’d rather wait a week or two and see how early January holds out.