Wednesday, 19 July 2017

Crude Oil Price Bottom for 2017 ?


As i said in my article Resumption of the Reflation Trade? last week that the crude oil was probably in the midst of a bottoming process. Just an after thought on that article, this resumption of commodity reflation may simply be due to the falling dollar. Regardless of the causes, crude prices seem to be putting in a bottom based on XLE.


XLE price chart from Sep 2016 to 19 July 2017 showing breakout,  double bottom and bullish divergences
XLE price chart from Sep 2016 to 19 July 2017 showing breakout,  double bottom and bullish divergences
(Click image to enlarge)

The price has broken out of the XLE downtrend for the 1st time since 12/12/2017. The downtrend is consisted of a series of lower lows, and it has just put in a double bottom. This is a reversal signal (short term or otherwise).

I may have spoken a little early. If i were to be careful, i shouldn't be excited about one day breakout because this could very well be a false breakout. But if all 3 technical indicators show bullish divergences since March (for MACD) and since May (for Twigs Money Flow), and the forming of a double bottom, this gives me more confidence for this breakout. The large green bar and above average volume is also supportive of this breakout price action.

XLE or other crude oil related ETFs tend to lead crude oil prices. So it's possible that crude oil may fall for awhile from here before heading up. But then, maybe not. It has been trending up since 21/06/2017. You could argue that the XLE confirms this crude oil's rise. In the last 2 crude relief rallies, XLE remains firmly in downtrend.


APC (Anadarko) chart from Sep 2016 to 19 July 2017 showing double bottom and bullish divergences
APC (Anadarko) chart from Sep 2016 to 19 July 2017 showing double bottom and bullish divergences
(Click image to enlarge)

APC is showing similarly the 3 bullish technical divergences and double bottom (close enough). It hasn't broke out of the downtrend (shown in light purple). I'll be getting into this stock quite soon. I won't wait until it breaks out of the downtrend. An entry around this level provides a good risk to reward ratio (it has fallen 36% YTD), at least for a short term tradable or oversold bounce. Wait for a breakout from the centreline of the downtrend channel (indicated by dash -----) for a trade entry, and a stop loss @ $43.

Be careful that this may just be a tradable bounce, and not a longer lasting reversal. Will just have to wait and see how it plays out.

As i said before that this crude rally is helped (but not determined) by the falling dollar. If DXY is staging a come back, crude could weaken somewhat. But don't expect precise negative correlation between DXY and crude.



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