Thursday, December 29, 2016
OVX Oil Volatility and WTIC West Texas Intermediate Crude Oil Weekly Charts; Complacency; Overbot; Negative Divergence
Everybody and his brother are long oil. Cousin Frank, who fancies himself as a smart trader, liquidated the college fund for his eldest son and went long oil with the money. Frank says he will receive huge gains in 2017 because all the analysts and television pundits say higher oil prices are guaranteed.
The OPEC and non-OPEC oil production agreement comes into play on Sunday. The oil cartel is a den of thieves. They pretend to set quotas to keep oil prices high. Every member cheats like a scoundrel thieving in the dead of night. All those oil producers including Russia will be producing oil like madmen but at the same time say they are participating in the oil production freeze. Thieves and liars.
The oil production freeze, which attempts to or at least maintains elevated oil prices, may cause some users to seek alternative fuels or methods and decrease oil use. Others, that filled empty reserves with the lower cost oil, may now choose to draw from those stocks instead of buying oil on the open market that is now higher in price. You can understand how the oil sandbox is a complex place to play. You can also understand that the world is awash in oil. A gallon of crude fetches one dollar far less than a gallon of milk. We have oil coming out our ears.
Once the first story of one of the Arab nations, or Russia, cheating on quotas occurs, which will likely happen fairly quickly, any hope of a uniform production agreement may crumble. The general risk to oil is more to the downside since everyone expects oil to move higher. What do the charts say? Do they back up or refute this thought?
The OVX is oil volatility. The red circles show tops in the oil market the green circles show bottoms. What do you think will happen? The OVX directly verifies the ongoing complacency and lack of fear with the oil market. Everyone is basically guaranteeing that oil will never drop under 50 again. Won't they be surprised when it slips under 50, and perhaps 45, and even perhaps 40. Cousin Frank will be sleeping in the garage.
The stochastics are overbot and the indicators are lining up with neggie d. The chart is agreeable to a pull back. Oil will likely sell off in the weekly time frame until price finds the green circle in the right hand margin. You will not be sure that a strong and robust tradeable bottom is in place for oil until the OVX prints above 50; then you can go long oil to your heart's content. For now, it appears smarter to go short oil contrary to the major consensus. Keystone currently does not have a position in oil but may enter a short trade, maybe going long the SCO inverse ETF. 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.
Note Added 6:35 PM EST: WTIC oil is at 53.93. It will be fun to watch oil over the coming days and week or three. Is Keystone's analysis correct above for a pull back or is all of Wall Street correct expecting oil to run to 60 in the near-term? Time will award one side a hero and the other a zero.