OIL BOTTOMING?

Yesterday I saw quite a few analysts viewing the reversal in oil as bearish. As usual these guys always miss these major intermediate bottoms. You need different tools to spot these major turning points. On the contrary I viewed the reversal in oil as a market that was waffling as it tried to make up its mind whether a bottom had formed.

61 thoughts on “OIL BOTTOMING?

  1. Gary Post author

    We’ll have to wait a couple of weeks to determine if oil is just producing another bear market rally or whether this is a final bear market bottom. If it is then it may be time for everything to go up together. Stocks, commodities and gold.

    1. tomy

      when you talk about gold you said it is difficult to predict bottom.Now you say that you are almost sure that we reach the botton in oil.On the other hand you say we have to wait a couple of weeks to be sure that this is the end of bear market in oil.

      1. tomy

        The problem is that saudia interes is that the price of oil will be low becouse this effect the economy of iran which is they enamy.So the floaded the market with oil.

      2. Gary Post author

        Listen to the video again. I said I’m pretty confident that oil has formed an intermediate cycle bottom. But we are going to have to wait a bit to determine whether this is just another bear market rally or whether it’s the final bear market low.

  2. jacob 2

    Yes! Agree …. Oil, materials and infrastructure better then gold for now while it takes a breather …. IMHO. Gold will be back. Sure everyone is familiar with the 30 year crude seasonal chart (couldn’t post). March -September are the strong months. From a fundamental perspective hear rumblings that Canada and the EU are contemplating massive infrastructure programs to get there economies going again. Funded by negative interest rates. If true very good for commodities and producer type stocks. Good luck.

    1. Jacob

      That’s our future, massive amounts of money getting thrown around. it even looks like this time it will be on worthy causes, but yes, soon stocks and commodities will surge together again

  3. Alexandru Popovici

    Gary, I personally agree with you on this.
    Furthermore, I am convinced that oil has bottomed (both on fundamental and technical grounds). The only thing that prevents me from buying it now outright are my position entry rules –> I would have the all-clear when it touches 31.50 as I stated yesterday.

    PS: Transports have not only produced a follow-through above their 50dma today but also broke the upper trend line of what seemed to you to be a bearish flag. So, I am also convinced that transports are in a new multi-year cycle too πŸ™‚

    1. Gary Post author

      I noted in last nights report the implications of what would happen if the PPT allowed support at 1825 to break. It would almost certainly lead to a catastrophic crash. This is why the PPT was formed in the first place, to prevent market crashes.

      We may be done with the 7 YCL and starting the bubble phase. We entered leveraged long positions in biotech and tech yesterday and today.

      1. Alexandru Popovici

        Gary, you might be right and the multi-year cycle low in stocks might be behind us.

        Though, I am a coward and I would hurl into a trend only if I am convinced first that that trend is indeed the new trend (as, for instance, I was convinced by gold on JAN28 due to USX’ clear movement into YC decline).
        Thus, I would rather skip any long-stock position: I still give this move in stocks (but not in transport stocks) a high probability of being a dead-cat bounce.

        1. Gary Post author

          One can use the intermediate trend line as their stop and enter the trade with very little downside risk. The PPT will move heaven and earth to prevent the market from dropping back below that trend line. As long as the market stays above it all the technical traders are going to be buyers.

          1. tulip

            the ICL….. Gary… what number..? I took your ‘bubble’ as we are in it..
            so I am confused…
            Thank you

  4. Chris

    Yes gary, if u look at ibb, it has pulled back to 50 mthly ema. And previous resistance, hence now support zone.

  5. Alexandru Popovici

    I have never understood why people buy options ! It is much safer to write them.

    USX-SPX correlation is have another attempt to turn negative πŸ™‚ πŸ™‚
    My expectation for that to occur starting on FOMC minutes is growing in probability πŸ™‚ –> USX not in a new IC but merely in a new DC while stocks go higher abreast gold,
    uhaaa! πŸ™‚

    1. Gary Post author

      Most of the time it’s safer, but ultimately it only takes one big mistake and years of successful trades can be wiped out in the blick of an eye.

      Like selling short, writing options comes with the risk of unlimited losses.

      When you buy an option you know exactly what your total risk is as the option can only go to 0.

      Writing options you make a bunch of small little profits until you hit one huge loss.

      Buying options you often incur a bunch of small losses until you hit that one gigantic gain.

  6. Bud

    Oil has popped on the pure hope that the Russia – Saudi Arabia deal will produce higher prices. The deal is contingent on Iran’s agreement. Given Iran and Saudi Arabia’s relationship, fat chance Iran will agree. Iran will not restrict oil production right now after many years of sanctions. Instead, they plan to increase production between 500,000 and 1 million bpd. That will add much-needed foreign currency to Iran’s economy.
    The only way for oil prices to rise from here is if world demand increases and we’re able to consume the oil surplus. Oil-production freezes like this are useless political baloney.

    1. Herman

      oil rises only because it is very oversold and sentiment extremely bearish, thus a countertrend rally. It just needs a spark, short-covering does the rest.

  7. CaliJoe

    Thanks Gary. Agree with you here. Some of the good oil stocks are not going down much and I think they offer some of the best value IMO. More so than miners. The reason I say is because so much has been shorted and so quick.

  8. Alexandru Popovici

    I agree with what you say on options, Gary, but I have found that Lady Market, in her bipolar disorder, plays paradoxical tricks to traders and seems common sense usually ends up being dramatic equity evaporation.

    Yes, buying options gives a fantastic window of opportunity to fast trending markets buuuut, as you’ve also noted, markets are usually range-bound and not trading.
    Thus, the option buyer is more often than rare caught in THETA grinding his equity out of those options.

    On the other hand, writing OTM, longer-dated but liquid options is a bliss in ALL TYPES OF MARKETS provided that one has extremely strong RISK MANAGEMENT RULES.
    Particularly one RM rule is a must in option writing: TAKE 20% AWAY FROM THE MARKET (BY SIMPLY NOT TRADING IT AND PUTTING IT INTO YOUR BANK ACCOUNT WHEN IT GROWS TO CERTAIN CAPS) OUT OF EACH OPTION WRITING PROFIT !

    This way, paradoxically, the balance of reward-risk management weighs more towards writing options rather than buying them.
    Except that, yes, people find it extremely hard to follow wise rules and it is because of that (not because of the intrinsic risk of trading by writing options) that people are found in what you say Gary: getting wiped out from one big blow.

    1. Richard

      Many option writers are writing against positions and hedge to remain somewhat neutral to capture the premium. They don’t expose themselves to “naked” risk as Gary pointed out above in which case a black swan could literally bankrupt them.
      For buying options, you can always use the same risk management skills to avoid large losses. One can also avoid small expiration windows, like weekly options, and “leg in” and “leg out” of positions at different levels.

      1. Alexandru Popovici

        those are different strategies by writing options but writing options I think is much more rewarding and safer provided that one dedicates to it 10% of all trading equity and employs the 20%-profit cash-sweep risk management rule I mentioned above in addition to the usual risk management set of rules except that parameters should be changed (such as reward/risk ratio of 4x instead of 2x and stop loss orders should be placed round-the-clock instead of just for trading hours etc).

        1. Richard

          Alex, the rules are good. I think most people want to utilize options for leverage. If you limit your option writing to 10% of all trading equity, then there really is no leverage.

          1. Alexandru Popovici

            i dont know what example to show you, Richard … 😐

            of course, trading options with 100% of equity or anything more than 10% of equity is madness regardless of direction either long or writing

  9. Herman

    as per contrarianadvisor: this is just a bearmarket rally, since oil got very oversold and sentiment extremely bearish. The ‘production freeze’ is just an excuse for the run up, oil can go as high as 42/barrel. Then down, to finally 10/barrel. The right switch to make here is from gold to oil.

  10. Alexandru Popovici

    slightest dovish word in FOMC minutes to come in half an hour and USX will dive in DC decline and gold will draw a superficial pennant before rocketing.

  11. Bill in Tokyo

    XLE – I’m staying out for now

    XBI – saw the breakout after long downtrend – am waiting for a higher low

    GDX – going down to a higher low or consolidating sideways? waiting for a buy signal …

    SPY – won’t touch a counter-trend rally – the monthly chart is on a sell signal for me

    1. Bill in Tokyo

      … to add …

      TLT – in an uptrend, and correcting, waiting to buy on the dip – low risk, low return

      1. Bill in Tokyo

        Agree – 2 hr RSI(14) is already overbought for SPY/QQQ/IWM – but I just can’t short it yet, not until we are clearly trending down – I’m staying away from the S&P for now – same as for XLE/OIH – too much news (=risk)

        1. Gary Post author

          I would suggest not shorting stocks. The Fed has a pinting press.

          The odds are good that the rest of the move into the ICL has been prematurely terminated. Trade from the long side now with a stop right below the intermediate trend line.

  12. Alexandru Popovici

    As forecast on Sunday treasuries have put their DCL today.

    I look forward to occuring the rest of the forecast:
    – treasuries to rise to new highs in the next days and next week before rolling over into IC decline
    – stocks will rollover too as treasuries will be in DC advance.
    WHATCH OUT NOT TO SHORT STOCKS AS YOU WILL SEE THEM ROLLING OVER IN THE DAYS TO COME! NEW HIGHS IN STOCKS WILL COME AS TREASURIES WILL ROLL INTO INTERMEDIARY CYCLE DECLINE IN LESS THAN 2 WEEKS!

    1. Alexandru Popovici

      ….there are also 2 other short-term bearish signals in the stock market:
      – VIX touched its 50dma today and had got rejected by it previously,
      – there is significant selling on strength in stocks RIGHT NOW!

        1. Alexandru Popovici

          I don’t know about that, Ted.
          Best time to assess the quality of an uptrend by the features of its pullbacks.

          We will have a shrt-term pullback at hand in stocks next days and we will be able to perform that review πŸ˜‰

  13. Jacob 2

    The last shall become first. Price acrion suggest massive sector rotation and new leadership in the on going bull market.

  14. Chris

    Monkey god has theory for everything. Even options writing too. Lol.

    But its good, lock 20% writing profits. Very smart, very logical.

  15. RayB

    Making money is good .. but we can’t take it with us when we die .. so always remember to give some away to help others while you here on earth πŸ™‚

  16. Dan

    I like the Canadian oil stocks like Baytex energy more than something like XLE – UWTI is just too volatile.

  17. Enoch

    looks like gold is again moving in sync with the YEN being the leading indicator, we have a few days of bullish gold as it attempts to retest or poke above 1260 then the big pull back to 1140 that everyone is waiting for will then start for 2-3 weeks decline before the next leg up

  18. Alexandru Popovici

    excellent: SWING LOW in treasuries confirming expectations.

    stocks also confirm my expectations for the onset of the fools’ pullback period –> only the uninitiated would short this stock market.

    time for swingers to buy the dip in stocks only after you see treasuries to new highs, diverging negatively with their oscillators, and showing exhaustion –> that will be the beginning of the IC decline in treasuries I have been touting as well as the of the new leg up in stocks towards their ICH in this dead-cat-bounce.

    1. Alexandru Popovici

      …oh, forgot saying that I bought pre-market a pilot position in oil via etf USO, at 9.00 (or 31.50 for oil).
      planning to pyramid to a full position IF oil manages to surge to new highs today.

  19. dab

    By writing options you are virtually guaranteed to go broke multiple times over at some point (giving back all accumulated profits and much more)
    Remember EURCHF 40% plunge within 30 minutes. 1 year ago.

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