The Technical Case for a Rebound in Oil....

By: Jes Black | Mon, Dec 13, 2004
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Making a case for crude oil is hardly groundbreaking at this time. But from our perspective, this is now the moment of reckoning. Recall that we accurately called the past two tops in crude oil at $50 and $55 to the day. [Read them here Oil1, Oil2, Oil3] Now, we finally have the opportunity to make a bullish call. Subscribers to HoT Weekly know from this week's issue we now see crude rallying from $40 to $60 in the next six months. Below is the same chart we showed HoT subscribers.

Speculators now have a net short position but were net long 80,000 contracts earlier this year in March. Therefore, the main force driving prices higher this year were the commercial hedgers that had to cover their record short position of over 100,000. Fundamentally, OPEC ministers are cutting back production because of the latest decline. But as we have noted before crude is in a long-term uptrend and we now expect to see speculators step up to the plate and buy like no tomorrow.

Oil prices fell to the key $40 per barrel level last week and we think this is an excellent opportunity for anyone brave enough to play the energy market. Oil divided by gold has absolutely collapsed (not shown) even though gold prices were decimated last week as well. What this tells us is that the decline in crude is overdone, because crude has a real story behind it arguing for higher prices, while gold's only glory is the instability of fiat money.

In the chart above we show that speculators are not only net short but also the most bearish since prices were at $30. We cannot help but think that this is a major buying opportunity with limited risk. If we are correct the speculators will soon jump into the fray taking prices to the $60 level. In turn this should drive yields substantially higher and send the stock market into a tailspin early next year.

If you don't have a futures account to trade mini crude, you can participate in XLE as it has a nice correlation and has again bottomed relative to the SPY at a key support level. Recall that the last time this happened over one month ago we went long XLE. We alerted subscribers then and promptly had a nice rally but were stopped out when crude collapsed this month.

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Jes Black

Author: Jes Black

Jes Black
fx Money Trends

Jes Black, hedge fund manager at Black Flag Capital Partners, specializes in foreign exchange and global macro trends. Prior to organizing the fund he helped MG Financial Group launch In the summer of 2004 Mr. Black formed FX Money Trends, a research firm catering to professional traders.

Mr. Black holds a degree in economics from the University of Kansas and an MBA from the ESC in France. His market commentary is often featured in the Wall Street Journal, Financial Times and Reuters. He has also written numerous strategy pieces for Futures magazine. To find out more about the funds research letter visit Qualified prospective investors can find out more about Black Flag Capital Partners by e-mailing

Under no circumstances does the information contained in this site represent a recommendation to buy, sell or hold any security.

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