RE:Where is Oil Going Next?Since it's relevent I will repost a thread I started a few weeks ago. This is the presumption I would trade oil under at this time of the year. However this presumption
must be confirmed by price action which can change depending on fundamentals. An example of price action confirmation of seasonal patterns is when you have a quick sell off of oil almost immediately after a bullish EIA invenventory report. This happened last week where we had a fakeout breakout of the 52 week highs and oil sold off all it's gains in mostly one 24 hr day. Another price action directional confirmation is the candle stick/ price pattern. Last wednesday there was a failed WTI post EIA spike past the 52 week high where oil could not hold it's gains. In the afternoon there was an afternoon fade followed by a mini afternoon panic. This type of pattern is predictive of the likely future direction the following near term. Another thing to look for is increased volume on the breakout. While there was a volume spike in the /cl from the prior trading day contract it was close to an average volume day. Sucessful breakouts almost always hold their gains plus have substantial volume on that breakout day. This did not happen with WTI last week the volume was about average and the spike failed. Look at the volume on Sept 28 (the OPEC deal rumor day) as counter example of price action and volume to confirm a reversal/trend change. That day we saw a huge spike, the gains held, there were a couple intraday bull flags and the volume was relatively high. I went the presumption oil would hit the low $50's range once I looked at all the variables.
Keep in mind these technical indicators should be underpinned with fundamental catalysts. OPEC rumors have been sucessful in causing a oil rally every time for the last 2 years despite the fact that they almost always fail or members end up cheating. Never question the market logic even though it might not make sence. This applies to earnings on equities as well. Unless you are a fundamental expert I would never question price action even if I thought the market has it wrong.
Always go with price action. So today we had another confirmation of a down trend with a bullish EIA followed by a close below the lowest trading price everyday since Oct.5. Since Oct 5 $49.0-$49.4 has been quickly defended by buyers. The last 2 days those support buyers got sold into.
Read the highlighted part of my post from a couple weeks ago. This is an example where you would think that oil should spike and cause a rally but that didn't happen. Below I point out that's exactly what happened this winter but in reverse. So in both cases the price action has and is confirming seasonal trends.
Big money is shorting and selling oil right now. If you watched the price action today you see quick selloffs on high volume followed by small rallies on low volume. Who do you think is coming in in quick 30 second bursts with big sell on the bid orders going through when you watch the time and sales?
The big money, and therefore the likely direction of any equity is left in the trail of price action they leave behind. Problem is most people are not watching for all the small details that are obscured in the chaos. The last 2 days oil closed down below 75% of it's candle range although closed dogiish. Yesterday it closed below the "T-Line" ie Steve bigalows term for the 8 exponential average he uses to asses trend direction. With oil/UWTI I think there will be a gap down tomorrow. Go with the direction of the gap after a dogi (in most cases). These are some of the clues I look for in determining direction.
1nt2Trade wrote: We are approaching the top of the trading range for the last year as well as a key fundamental level of $50 where perhaps the majority of producers are profitable. For at least the last 3 years oil has reliably followed seasonality patterns based on decades of data through mutliple cycles.
Here is a good seasonality chart for oil:
https://www.seasonalcharts.com/classics_rohoel.html
Doesn't that chart look very similiar to this year and last year? September early Oct highs followed by a drop into december.
Next look at the EIA data NormanBates posted about a week ago:
https://www.stockhouse.com/companies/bullboard/t.bte/baytex-energy-corp?postid=25258992
Notice in Oct and Nov for those 5 years there were solid builds in crude inventories. It's the shoulder season with refinery maintence and switching blends. Utilization rates by refineries drop leading to crude buids.
So far this year output from Iran and SA has largely negated the loss in production from other nations like the US with about 1 mBoE offline over the last year alone. I think the turning point , where the market is balanced, is going to happen soon over the next 4 months. An OPEC cut should accerleate the sentiment but they willl likely cheat so once the actual numbers come in the market will make corrections so the actual production and prior sentiment are aligned. Then oil should rise to a point where most producers are profitable $60ish.
Near term I'd bet on the 3 decades of data seasonality patterns. Oil should be near it's seasonal peak sometime mid Oct 2016 then should correct down to bottom mid Jan. 2017. OPEC cuts/.chatter or unexpected disrupions in the near term will change my predictions.
Big money bets on these seasonality patterns. This winter there were 10 million builds an days when oil rallied 5%. Point being even when fundamentals might not be bullish oil can rally especially when considering the seasonal patterns. So in the shoulder season, even with bullish catalysts, the prevailing 3 decade downtrend should hold.