Sunday, April 10, 2016

WTIC Crude Oil OVX Volatility Daily Charts W Pattern

Remember the OVX Keystone posted in mid-February when forecasting the bottom in oil? Here is an update. The peak at 80 was an easy dead giveaway that oil was going to rally. The spike in volatility indicates fear and panic in the oil markets. If you recall, that was when traders were wringing their hands, proclaiming oil is headed for the low 20's and one yahoo said oil is going to crash to 15. Equities move in sync with oil so the drop in the stock market had investors doubly concerned. One trader jumped out a window on 2/11/16 he was so worried that oil was crashing; and that was exactly when the bottom occurred. Do not worry; the window was on the first floor. Of course, that crescendo of negativity creates the bottom along with the positive divergence on the WTIC and Brent daily and weekly candlestick charts and uber high volatility with the OVX.

The OVX is well off the tops but remaining somewhat elevated above the 45 level. The period of high volatility for oil began in mid-November and remains. Oil price fell under the 40-43 price level when volatility started moving above 45 so pay attention to this level going forward. Oil bulls win big if the OVX drops under 45 and trends lower since oil prices will be moving higher to 42-43 and likely higher. Oil bears win big if the OVX keeps rising and takes out the 52-53 level to the upside since oil will be sliding down the rabbit hole again.

The pink W pattern was textbook with base at 27 and breakout level at 34, that is 7 difference, so the upside target is 41 (34+7) which was achieved satisfying the strong W pattern. Keystone is not trading oil now and does not plan to since there appears to be a lot of sideways stutter occurring and continuing. It is likely better to wait and see if the OVX spikes higher with an oil selloff which can set up a long trade, or, wait and see if the OVX collapses  lower in concert with an oil rally continuing which can set up a short play. The best path with oil now appears to simply watch the OVX and oil's price relationship with the stock market via the SPX.  This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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