Sunday, February 12, 2017

OVX Oil Volatility and WTIC West Texas Intermediate Crude Oil Daily Charts; OVX 2-1/2 Year Low; Negative Divergence; Ascending Triangle; Standard Deviation Bands Tightening

The OVX oil volatility sinks to a 2-1/2 year low signaling complacency with oil prices. Oil prices are moving sideways remaining buoyant so traders are not concerned about a downturn. The green circles show high volatility with panic in the streets, when the bottom occurs for oil prices, and the red circles show the low volatility, and party atmosphere, that leads to tops in oil prices. What do you think will happen?

The WTIC chart shows the standard deviation bands squeezing in so oil is going to make a big move; the spring is tightened down and ready to explode in one direction or the other. The thin blue lines show the indicators moving into the apexes of their sideways triangles hinting that a big move is at hand. The red lines indicate negative divergence and a move lower in price would be expected. This jives with the low volatility although, as seen in the broad stock market' s VIX, volatility can remain low a long time.

The OVX is positively diverged and oversold wanting volatility to spike from current levels but volatility is the most unreliable instrument to chart. Volatility can be setup to bounce but it will always surprise you so take technical analysis with a grain of salt when assessing volatility such as the OVX oil volatility or the general market volatility with VIX. The deadly volatility ETF's should never be traded at anytime. Volatility ETF's are criminal enterprises.

The red ascending triangle is perplexing. This is a bullish chart pattern and points to big upside if price breaks out higher. Typcially, however, the ascending triangle would develop with long and strong indicators but the indicators are flat and favoring negative divergence (sloping down) as price keeps printing highs along that triangle baseline.

The other difficulty with trading oil is the market is very emotional right now. Traders are watching to see if the OPEC producers and Russia are sticking to their production agreement, or not. The news last week about over 90% compliance with the agreement sent oil prices skyward. However, that was cheesy because if you backed out the data and looked at the Saudi and other Middle East producers they are about 60 to 70% compliant which is about what to expect. In other words, they all cheat on production numbers it is simply a matter of how much, and they are cheating now.

The oil inventories were huge builds last week so that will be key this week to see if the inventories remain robust. Oil is sloshing around everywhere but oil prices remain buoyant on the hope that the OPEC production freeze will hold and that the North American producers will not add too much to the oil supply. That is a lot to hope for. A look at the longer duration charts would be helpful. 

Keystone has no position in oil right now but would look at the short side not the long side for a play on black gold. 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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