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.

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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.

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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.