Crude Oil Could Fall Another 50%

Crude oil prices dropped 38% since October 3. The June 20, 2018 Profit Radar Report published the following analysis and projections:

The two charts below show two possible longer-term Elliott Wave Theory counts:

  • The first one implies that a major top is in.
  • The second one implies that we’ll see another high before a major top.”

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The November 25 Profit Radar Report stated that trade may bounce from the descending green support trend line, but warned that:

The 2008 and 2014 decline caution that failure to bounce despite being over-sold can lead to continued losses. In fact, the chart below shows that the chart pattern of 2018 looks similar (perhaps a smaller fractal) to the chart pattern of 2011 – 2015 (blue boxes).”

Oil prices did bounce from the green support line, but it failed to get above 55, which according to the December 9 Profit Radar Report was needed for a bigger snap back rally.

Price is once again nearing over-sold, and a bullish divergence exists, but betting on bounces in a bear market takes impeccable timing.

Continued updates are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s evaluation of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

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Crude Oil Update

As crude oil has been nearing the top of its trend channel, we’ve been looking for low-risk opportunities to short oil.

The proximity to trend channel resistance is not the only reason for our bearish disposition however.

Investors have become increasingly more bullish on oil, and trade seems to be nearing the end of a wave 4 rally (according to Elliott Wave Theory).

Waves 4 are choppy and unpredictable. In fact, this wave 4 has gone on further than we expected.

In an attempt to provide some clarity, the Profit Radar Report published the chart below on June 24.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Business Daily says: “When Simon says, the market listens.” Find out why Barron’s and IBD endorse Simon Maierhofer’s Profit Radar Report.

Based on this interpretation of the wave structure, oil needed one more rally above 75 before a massive decline.

The July 1 Profit Radar Report stated that:

“This is another window of opportunity for oil to turn lower, however, another strong close would likely erase the short-term RSI-35 and on balance volume divergence. A quick spike to 75 followed by an intraday reversal would be a picture perfect beginning of a reversal with significant down side potential (see June 20 PRR).

Not all signals are alligned for a good sell signal, but it’s worth taking a stab.

We will short crude oil if it moves above 75 on Monday or Tuesday or short the United States Oil Fund (USO) if it moves above 15.20 on Monday or Tuesday.”

On Tuesday, July 3, crude oil briefly spiked above 75 (USO above 15.20) before reversing lower.

As seen on the weekly chart, there’s another strong resistance cluster just below 80. We can’t yet rule out a move to this level.

For now we got an excellent low-risk entry point to go short, and as long as trade remains below Fibonacci resistance at 72.55, we are looking for lower prices (next support: 69.50). Continued updates for oil, gold, silver, US dollar and stocks are available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, 24.52% in 2015, 52.26% in 2016, and 23.39% in 2017.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

US Dollar Chokes Gold, Silver and Oil Movement

Gold, silver and oil haven’t gone anywhere in 2018. Why?

The chart below plots gold, silver and crude oil against the US Dollar Index.

The US dollar has been in a tight trading range for most of 2018. Although asset correlations come and go, commodities are traded in US dollars, and the US dollar inactivity likely contributed to the lack of direction in the commodities market.

I assume a dollar breakout will awaken commodities.

The November 29 US dollar update featured the chart below, which projects a more significant low in early 2018.

The US dollar is right in the down side target range, but the process of carving out a low is taking longer than projected. We are still looking for a significant dollar bottom (perhaps after one more new low).

If the correlation between US dollar (strong dollar = weak commodities) persists, the US dollar should soon begin to put pressure on commodity prices.

The first chart highlights some basic support/resistance levels and patterns to watch:

Gold:

Potential triangle with resistance at 1,365 (Fibonacci resistance at 1,382). Support around 1,310.

Silver:

Two potential triangles. A break of the shorter-term triangle should lead to a test of the longer-term triangle boundaries.

Crude Oil:

The January high could be a significant top. The short-term triangle (if it breaks higher) could cause a re-test of the January top and an excellent opportunity to short crude oil via the United States Oil Fund (USO). A break below triangle support may have 55 (long-term trend channel support) as next target.

We will look at technicals, seasonality and sentiment to assess the direction and scope of the next move. Continuous updates will be available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

2017 Oil Forecast

Although volatile, 2016 was a good year for crude oil. The January 10, 2016 Profit Radar Report printed this outlook for 2016:

Sentiment is bearish (which should be positive for oil), but seasonality has a minor weak spot until early February. The overall setup for oil in 2016 looks positive, with a potential buy signal early February.”

Crude oil bottomed on February 11 at 26.05.

Barron’s rates iSPYETF as “trader with a good track record” and Investor’s Bussines Daily says “When Simon says, the market listens.”

For the second half of 2016 our indicators never really lined up to point in the same direction. There was no clear signal, which helps explains the choppy performance since the June high.

What are key indicators projecting for 2017?

Investor Sentiment

Commercial hedgers (the smart money) are betting on lower oil prices. In fact, hedgers are holding a record amount of short exposure.

The chart below was published in the January 11, 2017 Profit Radar Report. At the time, hedgers were short to the tune of 465,400 futures contracts (this has increased to 509, 138).

Nevertheless, the January 11, 2017 Profit Radar Report stated that: “As long as trade stays above 48 – 50, we will allow for higher prices.” Why?

Seasonality

Oil is one of those commodities with a very distinct seasonal pattern. Seasonality turns strongly bullish in February.

Tiebreaker: Technical Analysis

Investor sentiment suggests risk is rising while seasonality should buoy prices.

How do we reconcile this conflict between sentiment and seasonality?

Such conflicts often cause stalemates or relative trading ranges.

Based on Elliott Wave Theory, oil appears to be in a wave 4 rally (which retraces part of the 2014 – 2016 drop from 107 to 26.

Ideally wave 4 will extend higher (towards 60) before falling towards and below 26 in wave 5.

Here are the most liquid oil ETPs (Exchange Traded Products):

United States Oil Fund (USO)
iPath S&P GSCI Crude Oil ETN (OIL)

ProShares UltraShort Bloomberg Crude Oil ETF (SCO)
VelocityShares 3x Inverse Crude Oil ETN (DWTI)

Continued updates and trade recommendations will be available via the Profit Radar Report.

Simon Maierhofer is the founder of iSPYETF and the publisher of the Profit Radar Report. Barron’s rated iSPYETF as a “trader with a good track record” (click here for Barron’s profile of the Profit Radar Report). The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013, 17.59% in 2014, and 24.52% in 2015.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Energy Sector ETF (XLE) Drops To Triple Support

It’s not exactly been a high-octane year for oil and energy stocks. Here’s an interesting long-term chart for the Energy Select Sector SPDR ETF (NYSEArca: XLE).

After chopping back and forth for all of 2015, XLE has dropped down to long-and short-term support.

The black trend channel dates back to the March 2009 low, and the green trend line originates at the secondary January 14 low.

Both levels intersect around 77 this week.

Although XLE remains in a chop zone that’s watered down many support/resistance levels, 77 might be a number to keep in mind if you’re thinking about buying/selling XLE (don’t sell until support is broken, and vice versa).

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Crude Oil Analysis Update

It’s been a while since the last free crude oil analysis (March 23: Next? A Crude Awakening for Oil Bears?).

The March 23 article noted that: “Commercial traders are starting to prepare themselves for further gains. Oil seasonality also suggests higher prices. Probably more important is a trend line that’s been important for oil prices for nearly two decades (this proprietary trend line and detailed oil seasonality chart reserved for subscribers of the Profit Radar Report). A move above this trend line is likely to trigger a rally.”

This important trend line is now in the rear view mirror, and I’m able to disclose it without conflict to my paying subscribers.

The green bold line in the crude oil futures chart below represents this trend line. It originates all the way back in 1998.

Since overcoming the bold green trend line, oil prices rallied as much as 33%.

Below is a summary of observations made in the Profit Radar Report since March:

March 29: “For aggressive traders, playing the long side (buy on dips) should ultimately prove profitable.”

April 8: “A close above 54.30 should bring more follow through gains.”

 

April 15: “Crude oil broke above 54 today. The breakout has legs as long as it stays above 54.”

May 6: “Oil prices are now gnawing on the resistance zone around 60. Yesterday’s red candle high may cause a pause. Next support is around 58.50, which could be an opportunity to buy.

Oil is trading around 58.50 right now. Based on seasonality, price may test support at 56 or 54.30 between now and mid-June (proprietary oil seasonality chart available to Profit Radar Report subscribers).

Overall, I anticipate oil prices to move higher as long as support at 54.30 holds.

Based on seasonality, buying oil ETFs like the United States Oil Fund (NYSEArca: USO) or iPath Crude Oil ETN (NYSEArca: OIL) before mid-June and/or around 54 – 56 (based on crude oil prices) is a trade worth watching.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Next? A Crude Awakening for Oil Bears?

After losing 55% in a matter of six months, oil has been flat for the last two months. Is it gathering steam for the next big move?

A volatile bottoming process is nothing new for oil.

The 1986 and 2008/2009 bottoming processes were volatile as well (2008/2009 highlighted by blue circle). There were many weeks of wild up and down swings.

The initial low wasn’t violated in a meaningful way, but there was also no meaningful progress for about three months.

Based on the 1986 and 2008/2009 script, the February 4 Profit Radar Report anticipated wild, range bound swings.

The VIX for crude oil (OVX – light blue graph) is about at the same level as it was near the 2008/2009 low. If the 2008/2009 Oil VIX high acts as resistance, down side for oil is limited.

The dark blue graph shows the net futures position (Commitment of Traders Report) of commercial traders.

 

Although not extreme by historical standards, it appears that commercial traders are starting to prepare themselves for further gains.

Oil seasonality also suggests higher prices.

The red and green lines are long-term Fibonacci support/resistance, but probably more important is a trend line that’s been important for oil prices for nearly two decades (this proprietary trend line and detailed oil seasonality chart reserved for subscribers of the Profit Radar Report).

A move above this trend line is likely to trigger a rally.

Before investing in Oil ETFs like the United States Oil Fund (NYSEArca: USO) or iPath Crude Oil ETN (NYSEArca: OIL), investors should know that futures based ETFs (like USO and OIL) are subject to contango, and may lag the underlying asset (in this case oil).

Although this wasn’t the case in February 2015 – when oil prices and USO/OIL gained as much as 24.4% before reversing lower – it’s always good to calibrate expectations.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Is the Smart Money Buying Oil?

If anyone knows fundamental supply/demand forces, seasonal patterns and the potential for curveballs, it’s commercial traders.

Commercial oil traders work with oil in their day-to-day business. It’s the only commodity they deal with. Commercial traders make up about 60 – 75% of the trading volume in futures markets. That’s why they are considered the smart money.

So, is the smart money buying oil?

The chart below plots the price of crude oil against the net futures positions of commercial traders (as reported by the Commitment of Traders report).

Commercial oil traders are almost always net short as futures are used as hedge against falling prices.

Here are the key takeaways:

  1. The smart money reduced short exposure steadily as oil prices tumbled. In itself, that’s good news.
  2. However, net short positions fell to an all-time low and are still well below the levels seen at prior oil price trough. That’s not bullish.
  3. Although oil prices managed to inch higher last week, commercial traders added to their hedges (red circle). That’s bearish.

Technical analysis shows an improving picture for the Energy Select Sector SPDR ETF (NYSEArca: XLE). Click here for detailed XLE analysis.

But oil ETFs like the United States Oil ETF (NYSEArca: USO) and iPath S&P GSCI Crude Oil ETN (NYSEArca: OIL) have yet to catch their footing.

Commercial oil traders are not yet convinced oil has found a lasting bottom. Unless we know something they don’t, it appears too early to buy.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Why Oil Crash is Unlikely to Trigger Stock Market Crash

Falling oil prices in 2008 led to a stock market meltdown. It’s 2014, and oil prices are crashing again. Will stocks follow the 2008 script? We live in a complex world, and there are a number of correlations that may cause a surprise outcome.

This report was originally published in the December 14 Profit Radar Report:

There is some concern that the drop in oil prices will push stocks into a bear market, similar to what happened in 2008. We live in a complex world, and here are some of the ripple effects caused by falling oil prices. A bear market is not necessarily one of them.

Low Oil Prices = Economic Stimulus

According to the U.S. Energy Information Administration (EIA), the United States consumes about 11.5 billion gallons of gasoline and 567 million barrels of crude oil per month (based on 2013 data).

Since late June, the price of regular gas fell from $3.8/gallon to $2.5/gallon. A $1.30 drop in gas prices translates into a monthly savings of almost $15 billion for U.S. drivers.

Since late June, crude oil prices fell from $107/barrel to $58. A $49 drop in crude oil prices translates into a monthly savings of $28 billion.

Without help from the Federal Reserve, the oil market just delivered an ‘economic stimulus’ that could be valued somewhere around $43 billion a month.

Oil vs S&P 500

This year’s oil price collapse differs from the 2008 collapse relative to the S&P 500 (NYSEArca: SPY). In 2008, the S&P 500 topped before oil did. In fact, the S&P 500 recorded its all-time high in October 2007 and was already down 21% by the time oil topped on July 11, 2008.

In 2014, the S&P 500 recorded new all-time highs five months after oil (NYSEArca: USO) started to decline.

The chart below plots oil against the S&P 500 and shows that falling oil (NYSEArca: OIL) prices are not consistently bearish for stocks.

Falling oil prices after unusual spikes or bubbles (1990 Iraq war, 2008 commodity bubble – red shading) have a bigger effect on stocks than falling oil prices after a periods of consolidation (gray shading).

The 2014 meltdown came after a year of sideways trading. If history can be used as a guide, stocks are likely to hold up despite the oil meltdown.

Oil & the Hindenburg Omen

The ominous Hindenburg Omen showed up multiple times in December. The media has published numerous Hindenburg gloom and doom articles in recent years. The most recent Hindenburg clusters occurred in May/June and August 2013 without effect on stocks.

A number of requirements need to be met to trigger the Omen, one of them is a spike of new NYSE highs and lows.

Declining oil prices sent many energy stocks to new lows. Those new lows contribute to the Hindenburg Omen requirements and the resulting signal.

Oil & the Energy Sector

98% of stocks included in the Energy Select Sector SPDR ETF (XLE) are trading below their 50-day SMA. XLE is extremely oversold. The immediate downside from such on oversold condition is limited. A bounce in energy stocks will serve as tailwind for broad markets. UPDATE: XLE just deliverd the most bullish action since June. Will it stick? More details here: XLE Delivers Promising Rally

According to JP Morgan, oil firms account for 18% of the high yield bond market, which explains the 10% drop in junk bond ETFs like JNK (detailed analysis of JNK is available to Profit Radar Report subscribers).

The rest of the report along with detailed analysis for U.S. stocks and oil is available to subscribers of the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.

Energy Select Sector SPDR ETF (XLE) Delivers Promising Rally

The Energy Select Sector SPDR ETF (NYSEArca: XLE) lost as much as 28.57% from June to December. Every attempt to go bottom fishing was greeted by further losses.

I was nearly tempted to fish for an oil low in late November, when I wrote that: “Oil failed to make a new low this week, but a marginal new low would likely come with a bullish RSI divergence and the potential for a bottom.”

Two days later (November 28) oil lost 10% in one day and I shared this updated outlook with Profit Radar Report subscribers: “Friday’s 10.4% loss was more than just a ‘marginal new low.’ RSI also confirmed the new price lows. Obviously this decline is stretched, and a rally can develop at any given time, but at this point it’s better to wait for a move back above resistance. The next real support/resistance level doesn’t emerge until around 50, but it appears ambitious to expect oil to drop that far.

Turns out the $50 target wasn’t all that ambitious after all (actual low for crude oil futures was 53.60). It appears like oil will test the 50 level next year. For now, the Energy Select Sector SPDR ETF (NYSEArca: XLE) chart looks more promising than oil.

The December 10 Profit Radar Report stated that: “XLE is near parallel trend channel support and may bounce, but with lacking evidence of a more permanent low in oil prices, going long XLE is risky. A drop below trend channel support followed by a close above would offer a low-risk buy signal.”

The weekly XLE chart below includes the trend channel (purple lines) along with helpful prior support/resistance levels (dashed gray lines).

XLE dipped below the trend channel last week and closed back above it on Wednesday. This is the first encouraging sign for XLE.

Yesterday’s Profit Radar Report spells out what’s needed next for this fledgling bounce to gain momentum.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF to get actionable ETF trade ideas delivered for free.