Crude Oil Continuation

By: Bob Loukas | Mon, Mar 20, 2017
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Oil on Fire

I like this Crude oil decline, and to date, it has been a picture perfect Cycle's development. Members of The Financial Tap were already tracking that expectation in advance, and positioned well to take advantage. But that big decline, which started on March 7th took many by surprise, judging by the extreme (Long) positioning seen with the COT report. And if you were not already short before the move began, the speed of the decline made it nearly impossible to establish a new position thereafter.

I believe that might not be the case anymore and another opportunity is at hand. We've seen a clear Cycle Low (March 14th) in my opinion, and that was confirmed with the rally after the FOMC last week. I know it was only a three day rally, but the move back to the 10-day moving average is possibly all that we're going to see, from a counter-trend perspective.

Light Cruse Oil Daily Chart

The COT report has improved somewhat, so obviously the "easy money" has been made on the short side. But the report remains bearish, and only tells me that the process of shifting from excessive long to short is still in progress, and will take time to complete. This also matches the fact that crude is now in an Investor Cycle decline, that process will be aided by leveraged longs capitulating and speculators picking up more short positions.

Interestingly too, crude oil sentiment is down, as expected...but still nowhere near the types of lows I believe we need to get to. When we consider the bearish COT report and the amount of time remaining in this Investor Cycle, I feel that we still have some way to go before looking for a meaningful bottom.

Crude Oil Optix

To the weekly chart, where I see a lot of downside work left in that chart. Now that this Cycle has given way and is in the declining portion, there is just no way it ends until it at least becomes oversold and touches the lower Bollinger bands. That would be the best case scenario for the bulls.

Therefore, it is my expectation that crude will fall another $7, at a minimum. Thereafter, it's really anyone's guess whether this ICL becomes a double bottom retest (around $42/$43) with the last ICL. Or in the worst case, this becomes a rout/crash that can be compared to the 2008 or 2014 declines. In that case, the downside over just the next two months is as far down as the low $30's!

Light Crude Oil Weekly Chart

 


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Bob Loukas

Author: Bob Loukas

Bob Loukas
The Financial Tap

Bob Loukas is the founder of "The Financial Tap", a membership site dedicated to helping traders and investors navigate the markets while increasing their expertise and understanding. Bob has over 20 years of experience in trading the markets, is a life-long student of economics, and has an abiding passion for the financial markets. Much of his investment philosophy is top-down in nature, beginning with a global and macro outlook which is used to create a framework that drives his intermediate investments.

Bob is a leading expert in Market Cycles. His love of Cycles grew after his introduction to the work of Walter Bressert, one of the pioneers in the field. Cycles were a natural fit with Bob's passion for top-down analysis. As Cycles are intertwined on multiple time frames, understanding the global outlook greatly helps him to identify the long dated Secular Cycles. From that point Bob is better able to identify the shorter Cycles and to build a cohesive investment strategy. Bob's Cycle Analyzer, a software based analytical and intelligence system, is used to predict the future movements of the major financial markets.

Originally from Sydney, Australia, he is now settled and has been working in New York City for the past 13 years. His background and education is in Computer Sciences and he holds a bachelor's degree from Monash University in Melbourne Australia. He has extensive experience in the Financial Software area and has served as a senior executive at various Fortune 50 management teams developing financial trading and reporting software.

Happily married with two children, family is a big part of his everyday life. Other passions including golf and long distance running. He plans to complete the 2012 New York City marathon.

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