The Greatest Short Of All Time
I think that XLE may possibly be at a point where it is simply the Greatest Short Of All Time. Allow me to explain my reasoning.
There is clear bearish divergence on the daily chart of the RSI where price is moving higher but the RSI is failing to make fresh highs.
The Wave Master also printed sell signals on the daily, weekly, and monthly time frames.
We are up against a Bearish Order Block from the Order Block Finder indicator which acts as solid resistance to push prices down.
The Sell/Buy rate indicator, which essentially tracks retail selling and buying of assets and tends to get inverted by the markets, has reached an all time high in buying. This is extremely bearish. Every single time it has even come close to these levels, the prices have fallen dramatically. As further proof of the retail exuberance around the energy sector, Google trends search volume for "Energy Stocks" soared to an all time high in January of 2021. Retail bought and continues to buy; this much is unquestionable. As we know, retail traders are almost always wrong. They were wrong with GME, they were wrong with Bitcoin, and they will be wrong with energy stocks.
Insider selling at never-before-seen levels, which has always historically has been followed by a movement downwards. Insider selling is important because these guys know the industry like the back of their hands, and understand things about it that retail never will. In fact, just as retail was selling off into the lows in 2020, insiders were scooping up their shares. They knew better than us then, and they still know better than us now.
The long term trend of the Energy sector is clearly down when you look at the macro charts and adjust for the inflation of the money supply. It's always good to align yourself with macro trends, since time will be on your side and even if you are wrong in the short term, you will be right in the long term.
Jim Cramer, famous for being wrong about 80-90% of the time, has said that it's a good time to buy energy. He does this to bait his retail followers into buying so that his wealthy backers have someone to sell their shares to. (Note how the sky-high insider selling proves that this is true)
According to some traders who study options data on stocks, there is also an extreme amount of put-buying from these institutional traders. This means that they expect the price to not only fall, but fall very sharply and on high volatility. It's quite possible that we could see news in Ukraine about how they have resolved the war. According to Polymarket, there is currently a 22% chance that Russia will end up "expanding its number of federal subjects by July 1, 2022". If they fail to do this, they have effectively lost the war, which would be very bad for the energy sector because wars use up a lot of energy and of course put upwards pressure on the markets. The opposite is also true here, where the announcement of a war ending could give us a downwards shock to the price.
The seasonality here is also pointing bearish. While March and April are very good months for oil, there is almost zero growth on average during May, June, and July the growth only returns for a possible pullback to the downtrend through August and September, followed up by the even more bearish months of October and November.
I also see some retail traders in the comments (who pretend to not be retail, but clearly are) who claim that there is an "energy supercycle" which will push prices higher. That is not how the market works, and I'm sure lots of traders are thinking the same way as this silly head. The fact is, saying there is a "supercycle" for energy is essentially him uttering the words "New Paradigm", which is exactly what ARKK investors were saying in 2020, and what the dot com bubble chasers screamed all the way to the bottom. Some thing never change. You might say "oh, the opinion of a single person cannot give us any real information about the market" but you would be wrong. You see, the way one trader who is following the herd is thinking is the way that all traders within the herd are also thinking. It's like drilling a hole into the ground to get a sample of the resources that lie below. Retail traders are the resources, and we are the drillers.
The US stopped putting as much money into investing in increasing production of energy. They did this because they don't see a long lifespan for this industry at all, considering the fact that we are slowly moving away from using natural gas and oil, to using green energy. The fact is, many of the energy production methods are not even profitable most of the time due to the extreme volatility of the commodity markets. US Shale Oil producers are finally breaking a profit for the first time in a long time, but they can easily go back underwater again just as soon as the prices fall some. Today's traders seem to forget that not long ago the price of oil was NEGATIVE, but I remember. As we perpetually innovate our production methods of this green energy, the prices will tank like we have never before seen.
Energy is also correlated to all other risk assets, and those have been selling off aggressively. There is truly no shelter from the storm here, but some traders like to dilude themselves that it has become uncorrelated. In reality, when an asset that was previously correlated experiences a brief period of not being correlated, it almost always ends up resuming it's correlation after a period.
I also have a very long term elliot wave count of commodity markets against the SPX which validates my bearish sentiment on the energy sector because I think we are going to see a very very large decline over the coming years in the price of commodities while stocks see a strong rally over time. In fact, when counting even the small degrees of this trend, it seems we have just completed the last leg of the terminal move up for commodity prices when set against stocks, and are ready to begin the great tumble. This will of course put pressure on XLE, since it is extremely correlated to commodity markets (energy is a commodity, lol).
OPEC, the oil cartel, managed to produce more oil in May than it had in April. As we know, the supply and demand is what drives prices to some degree. So this increased supply will push for lower prices, especially if OPEC continues to pump out more oil.
Read this thread about "Getting It In Good" by the genius quant trader from Alemeda Research, Sam Trabucco, to understand why having high-conviction trading ideas is so valuable, and why I am risking a large chunk of my account on this one single trade. twitter.com/AlamedaT.../1349538525218127872
The short version of this thread is simply that "Bigger is Bigger (when Betting is Better)"
In conclusion, I will hold my OTM puts at $78 expiring in about 2 months, and probably buy more at the market open.
And if you read this far, I will answer your question: Yes, I am autistic, and trading is my special interest. You trade to make money. I trade because it's the greatest game ever created, and more fun, profitable, and exciting than any other thing in the world.
Thanks for playing.
There is clear bearish divergence on the daily chart of the RSI where price is moving higher but the RSI is failing to make fresh highs.
The Wave Master also printed sell signals on the daily, weekly, and monthly time frames.
We are up against a Bearish Order Block from the Order Block Finder indicator which acts as solid resistance to push prices down.
The Sell/Buy rate indicator, which essentially tracks retail selling and buying of assets and tends to get inverted by the markets, has reached an all time high in buying. This is extremely bearish. Every single time it has even come close to these levels, the prices have fallen dramatically. As further proof of the retail exuberance around the energy sector, Google trends search volume for "Energy Stocks" soared to an all time high in January of 2021. Retail bought and continues to buy; this much is unquestionable. As we know, retail traders are almost always wrong. They were wrong with GME, they were wrong with Bitcoin, and they will be wrong with energy stocks.
Insider selling at never-before-seen levels, which has always historically has been followed by a movement downwards. Insider selling is important because these guys know the industry like the back of their hands, and understand things about it that retail never will. In fact, just as retail was selling off into the lows in 2020, insiders were scooping up their shares. They knew better than us then, and they still know better than us now.
The long term trend of the Energy sector is clearly down when you look at the macro charts and adjust for the inflation of the money supply. It's always good to align yourself with macro trends, since time will be on your side and even if you are wrong in the short term, you will be right in the long term.
Jim Cramer, famous for being wrong about 80-90% of the time, has said that it's a good time to buy energy. He does this to bait his retail followers into buying so that his wealthy backers have someone to sell their shares to. (Note how the sky-high insider selling proves that this is true)
According to some traders who study options data on stocks, there is also an extreme amount of put-buying from these institutional traders. This means that they expect the price to not only fall, but fall very sharply and on high volatility. It's quite possible that we could see news in Ukraine about how they have resolved the war. According to Polymarket, there is currently a 22% chance that Russia will end up "expanding its number of federal subjects by July 1, 2022". If they fail to do this, they have effectively lost the war, which would be very bad for the energy sector because wars use up a lot of energy and of course put upwards pressure on the markets. The opposite is also true here, where the announcement of a war ending could give us a downwards shock to the price.
The seasonality here is also pointing bearish. While March and April are very good months for oil, there is almost zero growth on average during May, June, and July the growth only returns for a possible pullback to the downtrend through August and September, followed up by the even more bearish months of October and November.
I also see some retail traders in the comments (who pretend to not be retail, but clearly are) who claim that there is an "energy supercycle" which will push prices higher. That is not how the market works, and I'm sure lots of traders are thinking the same way as this silly head. The fact is, saying there is a "supercycle" for energy is essentially him uttering the words "New Paradigm", which is exactly what ARKK investors were saying in 2020, and what the dot com bubble chasers screamed all the way to the bottom. Some thing never change. You might say "oh, the opinion of a single person cannot give us any real information about the market" but you would be wrong. You see, the way one trader who is following the herd is thinking is the way that all traders within the herd are also thinking. It's like drilling a hole into the ground to get a sample of the resources that lie below. Retail traders are the resources, and we are the drillers.
The US stopped putting as much money into investing in increasing production of energy. They did this because they don't see a long lifespan for this industry at all, considering the fact that we are slowly moving away from using natural gas and oil, to using green energy. The fact is, many of the energy production methods are not even profitable most of the time due to the extreme volatility of the commodity markets. US Shale Oil producers are finally breaking a profit for the first time in a long time, but they can easily go back underwater again just as soon as the prices fall some. Today's traders seem to forget that not long ago the price of oil was NEGATIVE, but I remember. As we perpetually innovate our production methods of this green energy, the prices will tank like we have never before seen.
Energy is also correlated to all other risk assets, and those have been selling off aggressively. There is truly no shelter from the storm here, but some traders like to dilude themselves that it has become uncorrelated. In reality, when an asset that was previously correlated experiences a brief period of not being correlated, it almost always ends up resuming it's correlation after a period.
I also have a very long term elliot wave count of commodity markets against the SPX which validates my bearish sentiment on the energy sector because I think we are going to see a very very large decline over the coming years in the price of commodities while stocks see a strong rally over time. In fact, when counting even the small degrees of this trend, it seems we have just completed the last leg of the terminal move up for commodity prices when set against stocks, and are ready to begin the great tumble. This will of course put pressure on XLE, since it is extremely correlated to commodity markets (energy is a commodity, lol).
OPEC, the oil cartel, managed to produce more oil in May than it had in April. As we know, the supply and demand is what drives prices to some degree. So this increased supply will push for lower prices, especially if OPEC continues to pump out more oil.
Read this thread about "Getting It In Good" by the genius quant trader from Alemeda Research, Sam Trabucco, to understand why having high-conviction trading ideas is so valuable, and why I am risking a large chunk of my account on this one single trade. twitter.com/AlamedaT.../1349538525218127872
The short version of this thread is simply that "Bigger is Bigger (when Betting is Better)"
In conclusion, I will hold my OTM puts at $78 expiring in about 2 months, and probably buy more at the market open.
And if you read this far, I will answer your question: Yes, I am autistic, and trading is my special interest. You trade to make money. I trade because it's the greatest game ever created, and more fun, profitable, and exciting than any other thing in the world.
Thanks for playing.
Comment:
New point for the bear thesis just dropped. I looked at XLE/USM2 (inflaiton adjusted XLE chart) and saw that it is coming up against very strong resistance near the top of the channel.
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We also have some pretty extreme bearish buying/selling divergence
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In total that should be 15 different reasons why XLE will likely fall over the next months. Any articles that say "This is why Energy Stocks are falling" are made up; I already outlined why energy stocks are falling, before it happened.
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The economy is slowing, consumers cutting spending, road trips and flights will slow down. This is demand destruction.
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We also have Wyckoff Distribution
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Another reason XLE is bearish is that inflation has almost certainly peaked. If you look at google trends, people are now searching for inflation more than ever before in all of history. This expectation of inflation has caused massive speculation on commodities, which created the bubble we see today. When the bubble pops, and people realize inflation is falling, they will start to panic and sell their commodity stocks, including their energy sector stocks.
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I also wanted to add, that it may take longer than 2 months for XLE to collapse. It could be wiser to get options that expire at a later date.
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Yesterday, Jim Cramer said that inflation is "worse than we thought". Inversed, this means that inflation is better than we thought! In other words, inflation is expected to fall down.
There is a proven correlation between US CPI inflation and the energy sector. When inflation falls, so will energy stocks. The main reason they rose in the first place was the inflation spike !
There is a proven correlation between US CPI inflation and the energy sector. When inflation falls, so will energy stocks. The main reason they rose in the first place was the inflation spike !
Comment:
I did decide to roll my puts over into October. This is because XLE *might* pop up a few last times before the big crash.
