Kumowizard
Long

Amazingly perfect analogy: WTI '97-'99 and 2013-2015

FX:USOIL   Crude Oil (WTI)
1616 16 21
First of all, let me tell you the original idea is not my own, I just worked it out here. One of my friends called my attention to analogy (discovered by their technical analysts group), which has been working perfectly so far between the periods of Dec/1996-March/1999 and Aug/2013-Today.
I found it amazing! What would be even more amazing? Of course ff             crude oil             could continue same pattern like it did after March/1999!

In hat case 2016 target could easily be ard 70 USD!
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Have them take a look at this! Time and price, high from start to lows, as well as where we are today in price.
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COLUMN-Expensive options point to fear of sudden oil price move: Kemp - RTRS
02-Dec-2015 15:06:15

(John Kemp is a Reuters market analyst. The views expressed are his own)

* Implied vol (2014-2015) : http://tmsnrt.rs/1NHlo8P

* Implied vol (2006-2015): http://tmsnrt.rs/1NHnoxR

By John Kemp

LONDON, Dec 2 (Reuters) - Oil options are becoming increasingly expensive as the market waits nervously for the outcome of the OPEC meeting in Vienna and eyes the large concentration of bearish bets by hedge funds.
Most oil analysts and investors expect OPEC will leave its production target unchanged at 30 million barrels per day or even increase it slightly to accommodate the return of Indonesia to membership.

But hedge funds have already amassed a near-record short position of almost 300 million barrels in Brent and WTI futures and options betting on a further drop in crude prices.

If the outcome of the meeting is not thought to be in doubt there is considerable uncertainty about how the market will react afterwards.

If ministers leave production unchanged it could give hedge funds a signal prices will fall further, sending the market into a tailspin below $40 per barrel.

But if prices do not fall as expected, there is a strong chance the market will rally, perhaps sharply, as hedge funds book profits and trim their positions.

And in the unlikely event oil ministers cut production, the large number of short positions could result in a very brutal short-covering rally.

The large concentration of short positions held by hedge funds has introduced a high degree of uncertainty into the short-term outlook for oil prices.

In 2015, large hedge fund short positions in Brent and WTI have presaged sudden price moves and an upsurge in volatility. The only other time hedge funds have held a short position this large, in mid- and late August, it preceded a brutal short covering rally, which saw prices surge $11 per barrel, or 25 percent, in just three trading days.

Option prices are directly related to traders' estimates of the probability of sharp price moves in the future, technically known as implied volatility. Implied volatility for Brent options has been steadily increasing since the middle of October as the market reacts to the big build up of hedge fund short positions and the imminent OPEC meeting.
Implied vol for at-the-money Brent options has climbed from 34.5 percent in mid-October to 44 percent at the start of December and is at the highest level since the price spike in August (http://tmsnrt.rs/1NHlo8P).

The average or median level of implied volatility since 2006 has been just under 31 percent. Implied volatility is currently in the 86th percentile for all trading days since 2006 - in other words implied volatility has only been higher than it is at present 14 percent of the time (http://tmsnrt.rs/1NHnoxR).

The fact implied vol is almost 1.5 times higher than normal indicates traders see a relatively high risk of large price moves in the near future.


(Editing by David Evans)

John Kemp
Senior Market Analyst

Reuters

Twitter: @JKempEnergy

Phone: +44 7789 483 325
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Many thanks for your post!
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Still good analogy if you keep not only to kumo trading
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Amazing analysis! Quite impressed.
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Nice work! It is very interesting technically indeed. But the situation right now is quite a mess. Shale oil changed the game and OPEC can't come to an agreement as before. There is a huge supply and weak global demand. Therefore I see oil dropping even further.
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Before OPEC geologists had identified some 50 years of oil reserves in the ground, much of which was in Saudi Arabia. Since then those reserves jumped to 200 years about 2004, and now we are at more than 300 years reserves and growing almost daily. (NOTE that the top chart upper indicator is at 100 and the lower is at 28, there is a long way to drop.) Then the change in the value of the deflated dollar due to government inflating the currency to devalue debt, off set in part by the cost of extracting the energy. Add to that the push toward renewables which lowers demands, the push of the global warming promoters to electric vehicles (which tend to burn coal and natural gas remotely to generate electricity), and theses reserves grow even more.
The supply is huge, the demand moderating. Then add the taxes which just shift the pressure of lowering prices to the producer and even more of our money to the governments, but then cheap gas tends to create more uses for it since it replaces other forms of energy (human, animal, hydro, etc.) and you have quite a complex picture. Yes, the chart illustrate all of those factors, and the human responses, but then you add the instability of the middle east and the USSR (I.E. Putin's dream of demagoguery, a return to communism) and all bets are off. The picture is very complex.
+1 Reply
yes, if they cut production, as they did before. but it seems they won't, so the analogy might stop here :)
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how do you know? I think they don't know either :-). But this is the point. If they cut production it will move up. If they don't they will be fckd too as it drops below 40. Game theory.
What is important for us in this chart? It is not a call to buy or sell, it is not a trade recommendation. Just interesting. The recommendation is to close all shorts and go long when it moves above weekly Kijun Sen!
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nice analogy, however, oil hasn't touched cloud so far like in 1998...
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