Has oil finally bottomed? I think yes… well at least temporarily. Let me explain.
The main culprit driving the CRB and oil down over the last 7 months has been the powerful surge in the dollar.
Over the last week oil has shown all the signs of putting in an intermediate degree bottom. It has completed a weekly swing low, along with a classic undercut bear trap reversal. Both are signs that a larger degree bottom has formed.
If oil has put in an intermediate cycle bottom like I believe it has, then it should rally for at least 4-6 weeks before topping and moving back down. And if the tight inverse correlation with the dollar holds, that suggests that the dollar is about to take a breather for a few weeks and move down into it’s own intermediate degree correction.
If you compare the two charts you can see oil started to rally almost exactly as the dollar topped.
Many other commodities are also bottoming, or have already bottomed confirming this probably isn’t just an energy phenomenon.
Let me warn though that this is likely just a bear market rally as the final 3 year cycle low isn’t really due till later this year. So I expect once the dollar finds it’s intermediate cycle bottom in March or early April then back up it will go until the euro reaches parity, and back down the CRB will come likely testing the 09 lows before striking a more lasting bottom later this summer or early fall.
For the next 4-5 weeks though, look for some respectable gains in the commodity sector.
Gary this is déjà vu from last weekend which may be another catalyst to the cause come Monday: http://www.bloomberg.com/news/articles/2015-02-07/u-s-oil-workers-strike-expands-to-bp-plants-with-talks-on-hold
http://www.zerohedge.com/news/2015-02-03/another-conspiracy-theory-becomes-fact-entire-oil-collapse-all-about-crushing-russia
“…For those who want to know when to buy oil, the answer is simple: just after (or ideally before) Putin announces he will no longer support the Assad regime…Until then, every single HFT-induced spike in oil is one to be ultimately faded, because as the past few months have shown, it is the Saudis who set the price, and they will not take no for an answer, even if it means crippling the entire US shale, and energy, industry in the process.”
I think you’re forgetting one very important point here. Charts have a certain “predictability” about them.. meaning that somehow [perhaps magically] they always price in the news weeks, sometimes months, ahead of *schedule and right now the ‘intermediate’ bottom in OIL is in.. will it last?! Probably not, but if you wanna make some coin, then best to take advantage of this short term opportunity. Same with Gold and Silver boys & girls!
*Schedule: News for the Masses.
January’s move hasn’t even got price back inside the monthly BB.
http://www.barchart.com/chart.php?sym=CLY00&style=technical&template=&p=MO&d=M&sd=&ed=&size=M&log=0&t=CANDLE&v=2&g=1&evnt=1&late=1&o1=&o2=&o3=&sh=100&indicators=BBANDS%2820%2C2%2C10066431%2C3227936511%29%3BSMA%2810%2C%29&chartindicator_1_code=BBANDS&chartindicator_1_param_0=20&chartindicator_1_param_1=2&chartindicator_1_param_2=10066431&chartindicator_1_param_3=3227936511&chartindicator_2_code=SMA&chartindicator_2_param_0=10&chartindicator_2_param_1=&addindicator=&submitted=1&fpage=&txtDate=#jump
I like to use a slightly faster setting on my Bollinger bands.
eurusd parity ? for how long ?
I don’t expect it till later this year. Right now the currencies need to deliver a counter trend move for 1-2 months to clear sentiment and set up another push higher in the dollar and euro down to parity.
Gary I think you’ve missed the real reason for the drop in oil prices… too much supply, and that has not topped but is just starting up. We have at least three major, major oil fields in the middle east that have been totally committed to selling everything they can get their hands on to solve their and our immediate problem. We are trying hard to ignore that problem, but in Iraq, Syria and Kurdistan it is front and center in priority. The Kurds have gotten their production up to 600,000 bpd. I think at least 100,000 bpd are new production capabilities that have just come on line. Iraq is similarly engaged, but I don’t know what they are accomplishing. Of course ISIS is doing the same in parts of Iraq and Syria. Their production is hidden because of the West’s desire to annihilate them (which they totally deserve). Price does not make a difference to these suppliers. They are in this for the duration with everything they’ve got. (The duration is probably a couple of years at best (maybe much longer)). In exchange for their oil what they are after is survival… spelled…war supplies, war supplies, war supplies, munitions, explosive, war supplies…very consumable items. I can not believe this is not the root of the drop in oil price. Please consider this in your commentary and if I am wrong explain why.
Yes, but we’ve had oversupply for a couple of years and it hasn’t made a difference till now. Part of it is just the pull of the CRB’s three year cycle low this year and part the rally in the dollar. But there is clearly a political component as well as OPEC has repeatedly gone to the media over and over to make it clear they will not cut production.