Friday, June 5, 2020
WTIC West Texas Intermediate Crude Oil and OVX Oil Volatility Daily Charts; Wedge Patterns; Gap; Inverted H&S; Negative Divergence Developing for Oil
The WTIC crude oil daily chart is very similar to the S&P 500 chart. It makes sense since all assets are pumped higher by central banker easy money. The OVX is oil volatility. Things were quiet early in the year with volatility low so oil prices were high and remain elevated. The stock market topped-out in February and receives a negative divergence smackdown. Same-o for oil in respect to the collapse but oil was already soggy for over a year.
The OVX launches like a rocket with oil prices plummeting. Oil receives both a supply and demand shock. The Chinese unleash the coronavirus (COVID-19) bioweapon on the world disabling the global economy. Mass populations are laid off and people sitting home do not need gasoline for their vehicles. Russia and Saudi Arabia (OPEC) fall into a price war and both succeeded in slitting each other's throats. Oil prices tried to recover but the OVX spikes higher up to that green circle above 5 hundo. This is maximum panic and fear. It is always fun to watch. People screaming bloody murder, running for their lives, fearing loss of money. Humans are a hoot.
The OVX then drops like a rock and trends lower since the April spike high so oil prices rally higher and higher. Volatility is now testing the 200-day MA at 64.15 so this is for all the marbles. Price has teased here for four days. It's time to sh*t or get off the pot. Either the OVX collapses below the 200-day targeting the price support cluster from three months ago at 50, which means the oil rally continues up towards its 200-day MA at 46.33, or, OVX spikes higher off the 200-day, the back kiss is successful, for oil bears, and the higher oil volatility sinks oil. The falling wedge for OVX is a bullish signal where price usually explodes higher. Remember, volatility moves opposite price so a big bounce in OVX means WTIC is collapsing lower.
WTIC price rallies up to that gap (yellow lines), hesitates at the price resistance, then pokes up through into the gap, starting to fill the gap. That gap at 35-40 is big enough to drive a truck through it. The stochastics and RSI (close enough) are overbot agreeable to a pullback. The red lines show negative divergence in play for all indicators except the MACD that is still long and strong (just like the SPX). This tells you a jog move (down one day and then back up) is needed with price so the MACD can set up with neggie d. Thus, a good candidate for the top in oil is Monday but it can simply fall at anytime, even today. The MACD simply has to roll over to pave the way lower. Oil bulls are rooting for the RSI to punch up higher above 70 and well into the overbot area to extend the rally a few more days.
The ADX shows that the oil collapse from February into April was a very STRONG trend lower. It petered out once the Federal Reserve and other sicko central bankers starting printing money like madmen to save the stock market again and protect the wealthy class (that own huge stock portfolios). Despite the record-setting, liquidity-fueled rally catapulting crude price back into the high 30's, the ADX is down at 24. The rally in oil is NOT a strong trend higher. The Aroon green line is pegged at the ceiling and the red line is jammed to the floor. Both are at their maximum positive readings and there is nowhere to go except towards negativity in this daily time frame.
The blue lines show an inverted head and shoulders (H&S) pattern. The right shoulder is cheesy but close enough for government work. With head at 12 and nedkline at 26 or 27, that will target 40-42 on the upside. Price almost made it to 38 yesterday so it is in the neighborhood that satisfies the pattern. Note that price ran up through both the 20 and 50-day MA's but never back tested. Oil price needs to come down and tap on the 20 and 50 to show respect to those moving averages. The rising wedge pattern for oil is a bearish signal.
Oil is trading all over the map and very difficult to play. Keystone is not in oil right now but is eyeing up the short side. As soon as the MACD goes neggie d, the top is in on the daily basis. This goes for the SPX as well. Recent days are odd since the ECB decision was yesterday and the Fed is next Wednesday. It is easier for the bulls to keep rallies going with this backdrop. The US Monthly Jobs Report drops in a few hours which is more drama to heap on the pile.
News wires this morning say that the Saudi's (OPEC), Russia (OPEC+), and Iraq (OPEC member) come to an agreement on production cuts and quotas. The thieves agree and then will begin stabbing each other in the back immediately. Don't you know there is no honor among thieves? So oil prices will be interesting today. Do they rise now that the oil producers agree on production limits, or, is that priced-into the rally and now that all the good news for higher prices is known, oil will begin slip-sliding away. Perhaps the latter has more clout since demand will remain a problem for oil going forward.
WTIC oil is up +1.5% to 37.97 this morning, call it 38. Price is popping on the news from 37.35 to 38.05 over the last couple hours, back to 37.80, and now up to 38.
So gathering up all that mumbo-jumbo and trying to make a trade out of it is challenging. Keystone will simply wait for the MACD to go neggie d and then short oil. Today may be a good day to begin an oil short. All bets are off, however, if the OVX begins dropping below the 200-day MA. Even though a price drop is likely coming, it will only last for several days. The broad stock market is set up the same way. The WTIC weekly chart shows long and strong indicators so price likely needs from 1 to 4 weeks to top-out in the weekly time frame. So oil, like stocks, may take a quick dip lower, but then a fast recovery again to matching and slightly higher highs, say a couple weeks out, and then that will be the top on the weekly basis and oil will begin a multi-week descent, like the stock market, say from mid to late June into August. 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 7:16 AM EST: WTIC oil is up +2.3% to 38.28 trying to sustain above 38. Keystone's 80/20 Rule says 8's typically lead to 2's so a move and closing price above 38 opens the door to 42. Brent is at 41.21.
Note Added 9:24 AM EST: WTIC oil pops above 39 now at 38.73. S&P futures are up +63 after the US Jobs Report.