Oilshort
SPX500 Diverging with WTIThis chart tells us a number of important points. First, the S&P 500 is strongly correlated with oil prices, but is now diverging with equities gaining the most ground. This is either extremely troubling or the S&P 500 or quite promising for oil (which is down for today). Second, oil is flashing overbought with RSI oscillator. However, we could also be witnessing former resistance as support in the upward trending channel. Overall, quite divergent signals from oil and equities.
USDCAD Still an Oil CurrencyWhile there is divergence with the relationship between oil and the US dollar to the Canadian dollar, this trend still holds. In all likelihood, the price of oil will continue to be closely tied to the price of the US dollar to the Canadian dollar.
Commodities are Probably a Bad Way to Track InflationUS President Trump’s nominee for Federal Reserve Board of Governors, Stephen Moore, was on Bloomberg this morning touting his unconventional ideas on monetary policy. During the interview, he suggested the Philip’s Curve was broken (it somewhat is) and that instead the Federal Reserve should focus on the relationship between inflation expectations and commodities, a pitch that inevitably leads down the path towards the reintegration of the gold standard.
This begs the question though, is there a relationship between inflation and commodities? It’s difficult to say since we do not have precise data, however we do have data on inflation expectations. Moreover, we can use the Western Asset Inflation ETF as a proxy which is a derivative of various inflation-tied assets such as inflation-linked treasury bonds in the US, a strong correlative with expected inflation. We can see that Moore is somewhat correct in his notion when it comes to gold, oil, and soybeans.
However, there is a problem with this idea primarily that commodity prices can dramatically fluctuate on a weekly basis whereas consumer inflation (the primary measurement of inflation) does not. While expected inflation tends to be correlated with actual inflation, it is difficult to determine which commodities we should use to track inflation. The best which come to mind are obviously oil and gold, but beyond those two staple commodities its less clear. Soybeans are a good candidate, but perhaps we are suffering from confirmation bias since the correlation seems to be tight.
What about lumber, sugar, or natural gas? Are these not commonly used commodities which could be used as proxies for price increases? Yes, but adding those to the mix significantly muddies this commodities-based approach and these are two commonly used commodities.
Volatility is extremely high in these markets as can be seen with sugar spiking in 2016, lumber spiking in early 2018 and natural gas spiking in late 2018. This brings us to the crux of another problem with the commodities-based inflation relationship; just because prices increase on the market does not mean that prices are transferred to the consumer. This concept is called pass-through and the IMF found that very little pass-through occurs during commodity price shocks to the consumer meaning that you cannot actually use commodity prices as a proxy for actual inflation.
The bottom line is that macroeconomics is quite complex. The Philip’s Curve and its counterpart the Augmented Philip’s Curve worked for a long time until they didn’t. Clearly, economists need to develop a better theory on what drives inflation. However, commodity prices are not that explanation. Time to keep looking.
If Oil Continues to Surge, Bitcoin May As WellBITFINEX:BTCUSD is clearly a more interesting asset recently with a 16 percent surge in just one trading day. Another asset that displays similar attributes is oil. Both should be considered risk-on investments given the beta or variance (assuming a normal distribution in an ordinary least square model) which both assets display. While oil gives us more insights into global growth, Bitcoin can provide an alternative mode in which investors can diversify especially those younger investors looking for higher gains with higher risk given the time horizon for market departure/retirement.
Obviously the relationship is not always consistently positive and when it turns negative it is not consistently oil increasing while Bitcoin decreases or Bitcoin increasing while oil decreases. Nonetheless, the relationship mostly exhibits a positive correlation coefficient in conjunction with similar standard deviations assuming an ordinary least square model.
The question remains though as to how long this surge risk-on appetite can be maintained and if the growth in high beta assets is merely speculative and wrong-headed or if there are more broader and positive macroeconomic trends that are reversing the volatility that struck markets in December.
Either Stocks Crash, or Oil RalliesWe are basically exactly where we were at in October 2018. About the same things for US equities. But why the divergence with US equities outperforming oil? Look what happened last time stocks become too zealous in January 2018. Correction downward to a near parity in percentage gains. Either stocks are going to readjust or oil is just going to go crazy in the next few weeks. My question is, where is the conviction, where is the demand (weak EU, weak China, weak EMs) and what are the fundamentals driving markets forward? I'm really opened, but color me skeptical.
Oil Moves with Economic GrowthOil edged up earlier in the week on the news that Saudi Arabia is focused on cutting output and petroleum-rated assets rose across the board in spite of the fact that a report came out asserting the Russian's weren't cutting as much as they previously suggested. Breaking the upward risking wedge is a really bullish sign as rising wedges tent to be reversal patterns. However, we could just as quickly get back down into the wedge or start to ignore it all together.
We can also see industrial production, typically used a proxy for GDP growth, and its correlation with oil. Since we can use industrial production as a proxy for GDP, we can then surmise based on the data and based on economic theory (also simple logic) that the strong economic growth is, the higher oil prices will be given that demand for energy consumption increases when economic growth increases. As can be seen, oil prices fell off a cliff when industrial production flat lined back in November 2018. If GDP growth cannot pick up, oil prices will follow suit.
Keep in mind stochastic and RSI are both flashing sell. However, the primary reason for oil to increase is demand in the international market. If oil increases then its clear global demand is probably increasing too as supply side attacks from the major oil powers have mostly failed over the past few years to maintain high oil prices. If this is the case then, we could see a surge from a whole host of risk on asset classes like US stocks for example.
Better Alternatives to MPC in Petroleum Sector Clearly, moving averages show that MPC is headed towards increased gains. However, it is having a difficult time convincingly breaking through downward short-term resistance. Moreover, oscillators at the monthly chart suggest a sell as do oscillators for the daily chart, primarily RSI and momentum. However, if you look at the comparison between other ways to invest in oil such as Brent crude, WTI, or one of the most liquid oil ETFs, MPC clearly is under-performing recently. MPC just barely beat out the S&P 500's energy sector while more of the liquid petroleum assets all greatly outperformed. The dividend yield per share is only 1.8 percent while the stock price is 11 times earnings. Overall, I am not confident in this stock's strength compared to its peers or its technicals. However, this does not mean the price won't go up, it just won't go up as high as other alternatives if the price of oil continues to climb. Because of this, if you are bearish on oil then you should get into the sector, but MPC is probably not the best way to do that.
CFDs on WTI Crude Oil USOIL to SHORTOil is shorting from channel, watch for ichimoku crossover first, bottom region of drop outlined.
Warning; trading comes with risks, trade safely and within reason. All charts to be used for guideline purposes.
Oscillators Signal Sell Even Though MAs Suggest Trend HigherIf global growth continues to slow, so too will Brent. If not, then this assessment should be updated. While technical oscillators are important for this forecast, so too is the assumption that global growth is not rebounding, but rather will continue to slow in the EU and China.
TRAILING CRUDE OIL PRICE ACTION- WHEN TO SELL!Thought I should make another crude oil analysis as market did hit the top of the channel line which i am expecting a drop from here, however still waiting for my last signal on the 4 hr view for downside confirmation.
Here is my other crude oil analysis which you should find quite informative;
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OIL Short Pullback because Stochastic, But Will Try to Edge UpTechnicals show that we are due for a bit of a pullback with oil. However, US growth is still strong and may be able to keep demand up while OPEC tries to cut down on supply. For more financial analysis and charts, check out www.anthonylaurence.wordpress.com
WTICOUSD came in major resistance zone.WTICOUSD came in major resistance zone. It is fibonacci 50% retracement.
Crude 2019 Channel PlayEver since the beginning of 2019, Crude Oil has been trading in a very consistent upward channel. At the moment, we are currently at the upper bounds of the channel, and crude is due for a drop to the bottom of the channel.
Looking at this channel, as well as historical zones of support and resistance a good entry would be in the range of 60.50-60.80 with a price target of 57-58, depending on how fast/slow it moves. Based on previous price action in this channel, I expect the move to take anywhere from 5 to 14 days to play out fully.
Longer term, at the time of writing this, crude fundamentals seem strong, and I expect it to remain this way. For this reason, I don't foresee the channel to break to the downside, but it is a small possibility. More likely that bulls continue the upward trend after this slight pullback.
Yeah, I might go short on OilIf inability to close over the blue trend line, this could be a bearish signal.
OIL TARGET REGIONS MAPPED OUTOil on the 1day view and possible targets outlined, trade within and/or watch out for a future break in trend.
If oil does stay within channel then expect a drop from around 60.90 - 61.30
If market breaks up then next big target region 67.60 - 68.00
Warning; trading comes with risks, trade safely and within reason. All charts to be used for guideline purposes only.
USOIL Short Trade - Intraday & Swing *Double Set Up* US Oil rejecting the key resistance zone at $57.50 which is a 3rd touch at this zone. Nice deceleration on the 1hr timeframe
By simply buying low and selling high, this set up seems pretty simple. We did see a 4hr lower low on Friday so excluding any complications, Oil may continue to drop off in to the low 50's over the week.
Stop loss is comfortably above the previous highs and out of this resistance zone.
US Oil - Intraday Short *Trendline & Liquidity Zone Trade*I still have a bearish bias on US Oil with price failing to break higher than its current level for the past few weeks.
Last Friday we saw heavy bearish momentum create new 4hr lows before sharply reversing in the afternoon/evening of the UK GMT timezones.
Price is now retesting a longer term broken trendline and is back in my liquidity zone marked on by the shaded area. As you can see, price has retested and dropped from this area multiple times.
LONG USOIL approaching support , Prepare For A BounceUSOIL is approaching our first support at 54.96 (horizontal overlap support, 61.8% Fibonacci extension , 61.8% Fibonacci retracement ) where a strong bounce might occur above this level pushing price up to our major resistance at 56.71 (61.8% Fibonacci retracement , horizontal overlap resistance).
Stochastic (89,5,3) is approaching support and we might see a corresponding bounce in price above this level.
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