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Crude Oil USO WTI At Resistance, Pullback Likely

The $38 resistance/target level in $WTIC, which was outlined on the first chart below, posted back on January 19th, is likely to produce a pullback to the $35ish level. Although the longer-term charts remain constructive (bullish), my prerferred scenario is a pullback to the 35ish level followed by a thrust up towards the 42-44 resistance zone.

USO (Crude ETP) is approaching resistance comparable to the $38ish level on $WTIC, where a pullback is likely (daily chart):

USO daily March 11th

USO daily March 11th

This bearish rising wedge pattern on crude futures indicates that a pullback off the support levels on my $WTIC & USO daily charts is highly likely at this time. (120-minute chart):

CL 120-minute March 11th

CL 120-minute March 11th

I had posted reversing from a DWTI (3x short crude etf) short position to a UTWI (3x short crude etf) in trading room right about when USO/DWTI peaked today but in the time that I took to annotate these charts & compose the post, UTWI has already dropped by nearly 6% (3% drop in USO) so I'm going to pass on adding that as an official short idea as I was considering although I will say there is probably still plenty of meat on that bone. However, USO is close to backfilling today's gap as I type so maybe best to either way for a bounce and/or short a break of the uptrend line on the 60-minute chart of USO, which should give way on any move much below today's LOD. As such, a short on any crude proxy (CL, USO, UWTI) or a long in any of the crude short etfs will be an unofficial trade idea at this time, although this post will be placed under the Short Trade setups (it just won't become an Active Short/official trade).

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Mar 11, 2016 11:06am|Categories: Gold & Commodities|Tags: , |9 Comments

9 Comments

  1. snipertrader March 11, 2016 11:15 am at 11:15 am

    So Randy, you expect Crude to decouple from Equities – correct? Instead of Crude and Equities rising and falling together as they have been doing more recently, crude starting to go up while Equities start the next leg down?

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    • rsotc March 11, 2016 12:06 pm at 12:06 pm

      Longer-term/bigger picture, yes. Crude might not be headed back to $80-100/bbl anytime soon & I could even see it languish around in a large trading range, say $35 -$55, for months to come while equities move lower. I know that sounds counter-intuitive, as falling equity prices (over a longer-term trend/i.e.- bear market) are typically associated with an economic contraction. Hence, an economic contraction = lower demand for crude, right? Maybe 30-40 years ago but not so much in this day & age of extreme gov’t intervention which has lead to unnatural distortions & imbalances in the financial markets, the repercussions of which are likely to continue to manifest in various & often, unpredictable ways in the coming years.
      Take crude prices surging up to nearly $150/bbl in 2008. That peak came in July 2008 while the equity markets topped in Oct 2007 & the economy started rolling over before that (of course, a lot of that data was revised after-the-fact, only confirming the recession long after it had already set in).
      Point being it was anything BUT increase demand for oil that sent it soaring towards the $150 area, rather all the mega-banks & brokers on Wall Street gaming the futures market with 80:1 leverage ratios.
      Likewise, crude peaked in early 2011, falling as much as nearly 80% at the recent lows. Was that due to a recession or economic contraction? No. Not according to the data or the fact the Nasdaq 100 gained about 100% from the same time period. Point being that it seems to me crude prices nowadays are much more dependent on variables other than demand although I don’t think anyone will argue that the recent plunge in crude was due to excess supply on the market. The recent correlation between stocks & oil will not last forever as a simple overlay of crude prices vs. the $SPX over the last 10+yrs will show you that correlation has ranged from a tight positive correlation, little to no correlation all the way to a tight inverse correlation.
      Bottom line is the longer-term charts of crude indicate that the 2011-2016 bear market is likely over or close to being over with price likely to rise in the coming months. Likewise, the long-term (weekly) charts of the US stock indices look to be near perfect mirror images of crude oil, indicating that their 2009-2015 bull markets have likely ended. I also wouldn’t read too much into the recent tight correlation between crude & equities either, rather, trade each based on its own technicals.

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      • snipertrader March 11, 2016 2:02 pm at 2:02 pm

        Hi Randy, thanks for your detailed response on this. I totally agree with you and also this is in line with my thesis that the recent coupling of oil prices and equities is decoupling now. Totally agree that all sorts of distortions are and have been at play outside of supply / demand in all categories. I think the recent linkage between oil and equities off oils lows is merely another sign that the winds are turning since a large part of this current equity move up over the last few years has been on the back of plunging oil prices. The oil is up is good for equities play is almost like the last gasp of “hope” that bulls are hanging onto – or have been hanging on to. When monies exit one set of assess classes it must find a home elsewhere ultimately. Money flows between equity, bond, commodities/precious metals and the currency markets are intertwined with it all as well. Therefore falling equities may mean rising something else ( certainly US bonds and perhaps commodities at the same time ). It’s of course possible that if there is some sort of scary credit event in the cards that everything goes down together including commodities except the USD and US Bonds as there is a mad dash to utter “safety” ( like what occurred in 2007/2008 ). The BIG difference this time around is that commodities have been in a bear market for quite a number of years now whereas in 2007/2008 they were falling with equities from the top of their bull market. Your follow up thoughts / responses greatly appreciated on my views here … Thx.

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        • snipertrader March 11, 2016 2:05 pm at 2:05 pm

          …. ( to round out my thoughts on the tail end of my above ) .. and therefore since commodities / precious metals are already “deflated” rather than “inflated” as they were in 2007/2008, perhaps this time around they hold their current levels or drift / even ramp higher while equities fall. Again if there is some sort of major credit event I think it could put a lid on commodities / precious metals ( all risk assests ) and give a lift to the USD / US Bonds for some time – until USD and US Bonds are ultimately viewed as the “risk assets” compared to commodities / precious metals. Thx.

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  2. davenchop March 11, 2016 11:40 am at 11:40 am

    ive already started a short position yesterday …do we have a suggested stop where we abandon ship… thanks

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    • rsotc March 11, 2016 3:46 pm at 3:46 pm

      @davenchop That orange line on the USO daily chart in the post should contain any further advance in USO before a pullback. That resistance level is 10.52 so that would be the upper-most stop but would also require a larger downside target from here or could be used if USO pushed higher & you average down on your position. However, I also have another R level at 10.40 on the 30-minute chart that I posted in the trading room earlier (defined by the bottom of the Jan 6th gap) which would probably be a more idea stop (60-minute close above 10.40) for a pullback trade down to the 9.64 or 9.28 levels. G-luck!

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      • joefriday March 13, 2016 9:16 am at 9:16 am

        Thanks Randy!… I agree… I’m short USO w/May $10 puts…. low $9’s is my target but could extend lower.. will see. Over $10.60 and i’m out. I’m not a lover of USO as it is a lousy proxy for CL..but futures too risky for me… BTW, love the site and all your work…keep it up and thanks creating such a great site!

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  3. Franklin4 March 11, 2016 1:03 pm at 1:03 pm

    Anyone else here suspect that The Markets’ unusually strong correlation to oil of late has less to do with any of the standard, or provided reasons and everything to do with the financial sector’s exposure to energy, not to mention pension funds, etc. Is the threshold to Armageddon supposed to feel this complacent?

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  4. Shambo March 11, 2016 1:30 pm at 1:30 pm

    I think that is true — regardless of what crude does from here, unless it spikes up to $70 or something, the fallout from reduced oil services and oil sands closures has only begun to reverberate through the system — there are a lot of bad energy loans out there..

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