Signs of a Bullish Move for Oil

Like commodities in general, oil made a bottom in early 2016. But after rallying strongly, it peaked in early 2017 and has been trending lower ever since.

This has created a lot of confusion. The chart is volatile, messy, and hard to read.

Is it bullish, bearish, or indecisive?

Source: Optuma

You could probably argue any of the above. I would say it’s short-term bearish and medium-term indecisive.

And I would also argue that this indecisiveness will turn bullish in the months ahead.

I say that because the ‘psychology’ of the market favours such an outcome.

Sentiment towards the sector is extremely bearish. At the Livewire Live investment conference I went to a few weeks ago, energy didn’t rate a mention, except as something to be avoided.

And a few weeks ago, the boss of Shell said he was preparing the company for lower prices ‘forever’.

Seriously. The boss of one of the world’s premier oil companies sees lower prices ‘forever’…

You only get these comments deep in a bear market. People just cannot see higher prices, in the same way they could not fathom lower prices in a bull market.

Here’s another example, as reported by Bloomberg on 4 August:

If an oil trader so good that he was known as “God” can’t win in today’s markets, it’s hard to imagine who can.

Andy Hall is closing down his main hedge fund after big losses in the first half of the year, according to people with knowledge of the matter. His flagship Astenbeck Master Commodities Fund II lost almost 30 percent through June, a separate person with knowledge of the matter said, asking not to be identified because the details are private.

In the short term, oil will likely correct a little. After all, it just had a strong rally from around US$44 to US$53 a barrel. A correction to around US$48–49 a barrel over the next few weeks would create a ‘higher low’ and set it up for another move higher.

As a result, I’m looking at accumulating the right energy stocks for readers of my premium newsletter, Crisis & Opportunity.

To me, the money is clearly flowing into commodities, including oil. But there is an absence of investor interest, or any sort of hype. That’s a result of the long and damaging bear market. People lost a lot of money. It’s a case of once bitten, twice shy.

Cheers,

Greg Canavan,

Editor, Markets & Money


Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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