The bullish trend in oil for the last fourteen days will reverse. The recent increases in price are the product of myopic investors ignoring fundamentals, the current macro view, and prematurely building their long-oil positions. With this in mind, these investors have created an opportunity to continue shorting oil for the interim whilst we wait for the long-term trend reversal in oil. The chart indicates a triple tops pattern (Resistance Points: 1,2,3). The average diminishing volume shows that buyers are exhausting their buying interest - soon enough, these herd investors will no longer be able to prop-up the price of oil. When this happens, oil price will resume it's previous downtrend and exit the bottom trend line (up-arrows). Keeping this in mind, savvy investors and hedge funds alike, will short oil, understanding the recent price ascent has lost it's strength.
Fundamentally speaking, the following are some generalized points to be made supporting the aforementioned:
* According to the Energy Information Agency, Crude Oil Stocks rose by 4.87 million barrels from 1/30 to 2/6. * Marginal producers are only beginning to exit the market. According to Erin Gibbs, Chief Investment Officer at Standard & Poor's, we are yet to see major cutbacks in oil. * As a means to maximize long-run revenue, OPEC should not begin cutting production until marginal producers exit the market. Moreover, if they could maximize any price increases by delaying production cutbacks until seasonality demand reduces the current glut. * Inflation remains relatively low, well below the Fed's two percent target. Considering this, there is no inflationary pressure in the price of oil. Additionally, interest rates will likely not be raised, given the most recent FOMC statement. * Ukraine and Russia have agreed to a cease-fire. Albeit, this will likely fail in the long-run, but given the short nature of this trade, this news will likely push price further down. * Greece continues to be a nebulous factor. The ambiguity is leading to a somewhat stationary dollar. The Euro is beginning to find some resistance and stability at 1.1375. Unless the dollar loses strength suddenly, this will likely lack influence on the price of oil. If the dollar continues to gain strength, we can expect demand for oiling in emerging economies, like China, to reduce. * The Williams %R, a good indicator of momentum, indicates that positions long oil are diminishing. I have provided a link below to Littleriver's chart work demonstrating this.
All being said, I have a bearish stance on Oil in the near-term. I prefer not to offer time-horizons given the stochastic nature "Mr. Market", but I tend to err on the side of caution; perhaps we see oil drop until late March. With the Fed making its announcement during the 3rd week of march, I'm choosing to stay in a more defensive position with higher cash reserves. Cognitive of this, I am choosing to take a relatively smaller position, but adding leverage by purchasing DWTI: Nymex Oil WTI 3x leverage.
DWTI
Purchase @ $94.00 Target @ $130.00 (Resistance at $132.47 and $130.95) I will close position if I see strong support on bottom trend line Stop-loss @ $87.50
The analysis was very accurate. We no longer have price bound oil (ascending wedge). Expect to see a new trade plan and analysis soon!
Christian_Jensen
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Thought we may have had our breakout move this morning given the downward pressure in price. A strong rebound though all the way to 54.00 / barrel. This is clearly the resistance. As of now, price is moving within the confines provided above. 54.00 is continuing to be a strong point of resistance. We are approaching a breakout soon.
Christian_Jensen
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I recently stumbled upon some of Littleriver's work. Demonstrates the weakening of the recent bull move in Oil using volume weighted moving averages (vwma) as well as Williams %R.
Entering with $94 dollar, and getting out with $50 profit. If the trend is to down, why getting that quick?
Christian_Jensen
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I made a correction. My current target is $130.00 given the mentioned resistance.
Erhanoksuz
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am I understanding it wrong? Your target is to hit below $50, you short at 53, 57 and you are aiming to leave when you make $30-40 profit "now". :/ Why don't you wait until you get near your target?
Christian_Jensen
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I am not shorting CLH15 (the chart). Instead, I am purchasing DWTI, which is an inverse leveraged ETN. Since the underlying is Crude Oil WTI, I am using the chart to demonstrate my logic. The trade parameters included in the chart are not entirely accurate with respect to my actual trade.