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Crude’s Resistance | Perspective | 7th October 2016

Crude’s Resistance | Perspective | 7th October 2016

Crude’s Resistance | Perspective | 7th October 2016

by | Oct 6, 2016 | Insights, Perspective | Chamber of Merchants | 0 comments

Crude Chart | Perspective. | 7th October  2016

Crude just broke above $50 for the first time in months. I expect a rally. However, I want to discuss three aspects to consider for the upcoming Crude “rally” to be weary before drinking that thick greasy kool-aid. There is a technical aspect, an economic fundamental aspect and a political aspect to Crude.

[P.S Gold is now at $1261 USD. It looks like we’re seeing further downside in the Price of Gold which I predicted in my previous post]

[Disclaimer: I’m not a financial advisor. Your wealth is at risk. Seek professional advice and do your own research. You’re reading the thoughts of a trader that has put his own wealth at risk. Don’t base your trades on this information. This entire site is for educational purposes only and a financial professional should be consulted before making any financial decisions]

Technical Perspective of Crude | 7th October 2016

Below is the daily chart for Crude Oil in U.S Dollars. This is very often the only chart that will be consulted by many novice traders. I know because that is all that I used to do:

crude-oil-daily-chart-oct-2016

crude-oil-daily-chart-oct-2016

I have framed the trading box to demonstrated the range which has been occurring over the past weeks. Clearly you have a high probability trade around $42, but higher risk around $50 given past price action. In the medium term, after November, I expect a return to the trading box/channel in the chart above.

Merchant always examines trends over time. This includes hourly, daily, weekly and even monthly charts. Information is power. Information from different time frames reveals supports, resistances and trends that cannot be viewed on hourly or daily charts.Now let’s turn our attention to the Crude weekly chart:

crude-oil-clnyse-weekly-chart

From a pure technical viewpoint I can determine that there are major resistances around $51 and $54.

Economic Aspect of Crude | 7th October 2016

I have inserted a few events in the chart above. Today shale fracking was upheld in the U.K.  This means the United Kingdom will become less dependent on other countries for their energy needs. This increases the supply of energy and reduce the demand for gas substitute which is oil. [Not in all aspects but in aggregatation]

Economically, all Crude producing nations, especially OPEC are producing record highs repeatedly with a continuing glut which will only abate if supply decreases and demand on the global growth side increases. There is a continuing over-supply and demand globally wanes as the IMF reports slowing global growth and China GDP continues to contract, albeit at a slower rate each year.

I recall that 2 global shipping companies are currently in the last stages of survival and capital investment hastens its decline globally, meaning less need for crude.

[I also wish to add that lower crude prices are great for you and me because costs to consumers reduce, production costs decline and inflation becomes more aloof]

 

Political Aspects of Crude | 7th October 2016

Crude and the U.S Dollar are tools over smaller nations buy the U.S.A. Have you ever considered why Crude is alwasy sold in U.S Dollars? Even countries that are nowhere near the U.S.A still need to sell in U.S Dollars. It keeps the U.S Dollar as the most powerful and used currency on the globe.

Additionally, lower Crude prices are placing terrible pressure on the Crude industry which expanded and profited at $100+ USD per barrel. So the moment Crude looks like it’s making a comeback nearer to $60, the stock markets rally, They rally because the oil industry is riddled with debt. Debt that was loaned to Crude companies by banks when Crude was over $100+ USD. The moment Crude goes up, we see a shimmer of hope that the financial sector and crude sector combined wil become more profitable. In addition, basic economics dictates that the price for Crude will be higher if demand is higher. And demand is higher when the world economies are doing well and need more oil.

Enter reality. Crude prices are low for a reason. We’be discussed that in lenght. But historically speaking, a rallying stock market is always positive for the incumbent in the presidential elections. Therefore it would be very beneficial if Crude would happen to rally at the very same time the U.S.A prepares to go to the voting booths.

It just so happens that Saudi Arabia and Iran hinted they they would be willing to freeze their record output. This is serendipitous indeed.

There’s a catch though: the meeting for OPEC in which this landmark “agreement” might happen is 3 weeks after the U.S elections.

L.O.L

So, we have the U.S elections benefiting from rumour driven Crude price rally, but the truth of the rumour is only revealed after the elections. My bet is no agreement. (Some OPEC countries have reported output cuts but were later found to be fudging the numbers…hmm)

Conclusion

crude-oil--weekly-chart

crude-oil–weekly-chart

While there is certainly many reasons for a rally in crude prices, not all the reasons are economically sound. I would be more comfortable entering around the bottom of the price. However, a rally to $54 will have a momentum drive on all crude stocks which is a punt worth taking as long as you don’t believe the headlines when the time arrives. If it were my trade I would certainly exit with a profit at the top of the resistance channel and forget about $60 any time soon.

Wishing you a successful day on the Australian Stock Exchange.

 

| the Merchant

 

 

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We’re at the next leg up for the ASX gold miners. Check out my posts, follow me on twitter @ASX_Merchant or subscribe to this public blog in the form below to see what I have found useful in my trading experience and to share some of the insights which have worked for me.

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