The Road Ahead for Oil
Contributed Opinion

Source:

Technical analyst Clive Maund charts oil and suggests that a commodities bull market may be brewing.

The paradoxical technical situation for oil that we highlighted in the last update has continued—and has gotten even more extreme. In that update we concluded that oil's very bullish volume indicators pointed to its continuing to advance, despite COT and Hedgers charts and sentiment indicators showing extremes that would normally call for a reversal to the downside, and that is what has happened.

We see on the 5-year chart for Light Crude that it appears to have broken out of its large Head-and-Shoulders bottom several months ago, but its advance since then has been hesitant and we cannot be absolutely sure that it has broken clear out of this potential base pattern until it has broken clear above its 2015 highs, which is the high following the completion of the Left Shoulder of the pattern. As with copper, that we looked at just yesterday, the strong volume towards the latter part of this pattern and the powerfully rising volume indicators suggest that a major bull market is starting, however, we have the conundrum of reconciling this with various indicators which are at extremes and pointing to an imminent reversal to the downside. Action that would reconcile what we are seeing both on the charts and on various indicators would be an intermediate or medium-term correction, followed by renewed advance taking the oil price to new highs.


On the 2-year chart for Light Crude we can see one big reason in the price pattern why it might reverse here into an intermediate correction—it has arrived at a significant trendline target in the $60 area.


Now we will proceed to look at the indicators which strongly suggest that oil will soon reverse to the downside. We start with its latest COT chart which shows Large Spec long positions at 1-year highs, and since these are the habitual bagholders, this is by itself an invitation for oil to reverse to the downside.

Click on chart to pop up a larger, clearer version.

Next we move on to the latest Hedgers chart which shows that Hedgers' positions are now at shocking bearish extremes that have almost always in the past led to a reversal to the downside quite soon after, even if oil makes limited further gains first.

Click on chart to pop up a larger, clearer version.

Chart courtesy of sentimentrader.com The latest Crude Oil optix, or optimism chart, shows that traders are wildly optimistic about the outlook for the oil price. At worst this is a sign of a significant top, and at best it means that a period of consolidation is usually needed before the price can advance further.

Click on chart to pop up a larger, clearer version.

Chart courtesy of sentimentrader.com

Finally, the seasonal chart for oil shows that seasonal factors are negative for this commodity in January, but much better in March and April, which supports the scenario for a near-term reaction followed by renewed advance later.

Click on chart to pop up a larger, clearer version.

Chart courtesy of sentimentrader.com

How this situation plays out now may now depend on how events unfold in Iran and what effect it has on both Iran's oil fields and its oil exports. Technically, the most probable scenario is a medium-term reaction, followed by renewed advance to new highs, which is also what the copper charts portend, and more broadly the action in both copper and oil suggests that a major commodities bull market is incubating, a big beneficiary of which will be silver.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Disclosure:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

Charts provided by the author.

CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stockmarket analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.

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