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Brent Crude rally ends, time for the big Bear!


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I actually closed my oil long on the back of this post (along with some other analysis of course) so thanks for the trigger to re-evaluate. 

First question for you is are you day trading Oil or looking for a longer term move?  If the latter (and probably in either case) then after such a sharp rally and reversal it is best to stay out for

potential channel break

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On 01/02/2020 at 21:26, dmedin said:

The fossil fuel industry is dying and it won't come back.

Coal has had it's day but Oil and Natural gas is still the mainstay and will be for decades to come.  In fact the world is awash with natural gas, hopefully instead of burning it off at Oil wells it will be harnessed to produce electricity as it is the cleanest version of fossil fuel.  The latest technology being worked on by the Oil industry, which is in reality the Energy industry as few, if any, are pure Oil companies anymore, is to use carbon dioxide in fracking to fix the carbon dioxide as part of the process and render the extraction carbon dioxide neutral.  If the Oil majors share prices were to plummet  they would be a massive buy for me.  They will be at the forefront of of the next energy revolution.

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20 hours ago, Mercury said:

Coal has had it's day but Oil and Natural gas is still the mainstay and will be for decades to come.  In fact the world is awash with natural gas, hopefully instead of burning it off at Oil wells it will be harnessed to produce electricity as it is the cleanest version of fossil fuel.  The latest technology being worked on by the Oil industry, which is in reality the Energy industry as few, if any, are pure Oil companies anymore, is to use carbon dioxide in fracking to fix the carbon dioxide as part of the process and render the extraction carbon dioxide neutral.  If the Oil majors share prices were to plummet  they would be a massive buy for me.  They will be at the forefront of of the next energy revolution.

Tell that to China, i strongly disagree coal is very much in use ,industry cant just stop using coal even if it wants to,

i do agree oil is not going to die nor is gas, also Hydrogen is the dark horse thats going to come through at a canter

there is a reaso Scotland wants indendence and its not simply EU or national idendity.

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So Oil is done.  $50 on Brent is fast approaching.  Sell baby sell..!  Or maybe not.  Oil is a market that all too often goes in unexpected ways.  The price action is seemingly screaming bear but that is usually when things take a turn...  I have no fundamentals on this other than an interesting piece on Real Vision that suggested Oil is indeed more scarce than we are currently being led to believe, and my own previously stated assertion (based on Energy experts views and reports) that Oil will remain a core component of the global energy mix for many years to come, and probably for all of my lifetime (I'm not 80 or anything!).  Note also that $50 (this might be WTI) is often quoted as a key level for US shale producers profitability, although that might be different now that most of the capital investment is in the ground!  That is another reason the industry will not want the oil price to drop BTW...

So my contrarian thoughts are based on the above general thoughts plus the technicals as follows:

  • On the weekly chart the form of the move from late 2018 to May 2019 does not look much like a counter trend rally (not an A-B-C) so my working hypothesis is that this is a wave A, which should be followed by a B-C and therefore a higher high than circa $75.
  • The price action since then and to date has been chaotic with lots of whipsaw, this is consistent with a wave B rather.  Currently price is not far off the $50 previous bear phase turning point.  A wave B would turn before this and price is currently at some strong support with PMD and a 1-5 count down on the recent bear move (i.e. wave C - green- of wave B - Blue).
  • There is an unclosed gap on the current bear phase.
  • On the Daily key oscillators are oversold and beginning to reemerge out of the oversold zone.  No clear PMD but that is often the case with a wave B I have found.
  • On the 1H the PMD returns on the most recent low and there is a decent channel in play.  A break of this channel to the upside could result in a gap close at the very least and after that maybe a strong rally.  If it is to be a wave C all the way past $75 for a higher high then it is likely to move fast.  A break of the upper channel will be the first signal.
  • Obviously a break of $50 support would negate this scenario.

Brent-Weekly_050220.thumb.png.e1450e4d5bba477eb7b71aeeee4a2acd.pngBrent-Daily_050220.thumb.png.895771e7c8ca94e6bc9dad31cc3e9934.pngBrent-1-hour_050220.thumb.png.612a2abde42cb720d805c2f90c38bd48.png

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So Brent remains above $50 and as long as it does the contrarian rally scenario is alive.  From a fundamentals perspective it is hard to see why Oil is indeed falling while apparent economic activity "might" be ticking up, at least temporarily.  There is a strongly held belief, borne out by history, that high oil prices preface a recession and related bear market so if we follow that then we need a strong rally to kick off the recession.  I don't see electric cars and alternative power sources miraculously appearing in the quantities needed to make Oil redundant any time soon so demand is still there and we all know the cartels need Oil at certain minimum levels to remain profitable, and the market is dominated by these players.

From a technical perspective the price action is still within the structure on a complex A-B-C pattern, which would suggest a strong wave C rally to come soon.  A break power than $50 would negate this scenario.

There is a strong channel on the current bear move, a break of which would be a powerful signal for a rally. and PMD on Monthly, Weekly and 1H charts, not Daily though, which may mean another leg lower is needed.

Perhaps the most interesting technical structure is the long term Triangle that has encompassed price action since 2009, which conforms to a massive A-E, the market now being in the final wave down.  Charting convention is to fade or trade the extremes of these formations but it being so large I think a hold or break of near term support is a decent trade, just don't know which way it will break but I prefer the rally set up, marginally.  Long term I think we will see very low priced Oil driven by a collapse in demand as the global economy craters to clear out all the ponzi scheme central bank policy, after than who knows...

Brent-Monthly_080220.thumb.png.ffd4a32eab991036ef25f031b7727d37.pngBrent-Daily_090220.thumb.png.936008805b2aebeb8db60945c357031e.pngBrent-1-hour_090220.thumb.png.0602c3fdac9265b7229f0ffb8ffeaca1.png 

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Brent is looking like it may be confirming a channel breakout and trend reversal with a small bearish retrace done and higher highs.  Looking for a close above ST resistance.  PMD on the turn above the crucial $50 level (actually on the Fib 88%) and oscillators have plenty of upside before being overbought.Brent-Daily_130220.thumb.png.eccb6b4e183d6ed776f5b21736bf5707.png

 

 

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7 hours ago, dmedin said:

38% retrace to fill the gap then downtrend resumes?

Don't follow!  Why is the Fib 38% the target?  I assume you are bear biased and looking for a temporary bullish counter trend rally?  But why do you not think this could be a trend reversal?

My lead scenario is for a bearish retrace move that tests the previous channel breakout and gap closure before a major motive wave rally.

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Fossil fuels have had their chips 👍🥳

Quote

Coal-fired power in India is being increasingly priced out of the market by cheaper renewables such as solar, with the dirtier fuel abandoned by private capital, and only projects with government support being viable.

https://uk.reuters.com/article/uk-column-russell-coal-india/column-coal-fired-power-is-losing-unfair-fight-in-india-to-renewables-idUKKBN20E0S2

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Part 1 of the bearish retrace perhaps done.  If so a bit of a rally before a stronger bearish phase to complete the A-B-C retrace.  I am tipping a Gap close retest of the previous channel breakout zone, which is around the Fib76/78%.

Brent-1-hour_220220.thumb.png.9f4b028a46393f10d1a771778f14bf82.png

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8 minutes ago, TrendFollower said:

@dmedin,

When you zoom out and look at Oil on a 'Monthly' and 'Weekly' timeframe then it seems like it is trying to consolidate. Whether it does not or time will be determined by the price action. 

 

Basically the world is going to grind to a halt for the first half of this year ... will be an excellent opportunity to buy oil at some point but I think it's going to re-test its lows at around $53!

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