Oil prices are headed here…

Rick_PendergraftThree weeks ago in this space, I wrote about the oil market and how I was looking for oil prices to rise. Since then, oil has been undergoing some significant changes, and things don’t look the same now as they did a few weeks ago.

But this is just how the market works—nothing stays the same for very long. At least the beginning of a rebound for oil has begun, but where is the price headed now? Right here…

The price drop from two weeks ago did cause the relative strength of oil to reach the oversold level, and the slow stochastic readings were already in oversold territory. The important thing to look at is that in the three previous instances where oil has become oversold and then when the stochastic readings made their bullish crossover, oil rallied significantly in the following months.

One of the things I mentioned in the previous article that was worrisome was the fact that large speculators were still net long over 345,000 futures contracts, meaning more contracts were bought than sold. The bullish position has continued to shrink and has fallen to under 320,000 contracts being held net long. It might not seem like much, but this is the smallest net long position the group has had since last November.

The geo-political picture was another reason I mentioned for being bullish in the previous article and that has changed a little. Israel and Hamas have come to cease-fire agreement and it appears to be more than just temporary. Meanwhile, the war between Ukraine and Russia seems to be getting more heated by the day. Russian President Vladimir Putin has picked up his rhetoric in recent weeks and has warned the world not to mess with a nuclear Russia.

The U.S. has also picked up its airstrikes in Iraq against the radical group ISIL. ISIL has been advancing their cause in parts of Syria and Iraq, and have even taken control of some oil fields. This is very disturbing and could wreak havoc on world oil prices should this trend continue.

With everything that has changed in the last few weeks, one thing that hasn’t changed is my opinion on where oil prices are heading. I still think oil rallies over the next few months. I see the price rising to at least $107 a barrel again between now and the end of the year.

If you are looking for a way to benefit from increasing oil prices, but don’t have a futures trading account, there are a number of ETFs that are based on oil prices. One of the most heavily traded and most directly related to oil prices is the United States Oil Fund (NYSE: USO).

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You can see how the chart for the USO is similar to that of crude futures, but we see a trend channel that has dictated the prices for the last couple of years. The fund just bounced off the lower rail of the channel and it also saw the slow stochastic readings make a bullish crossover this past week.

Based on the previous instances, I would look to buy the USO and look for a 20% gain at the very least. If there is an abrupt rally, it would be a 20% move up to the upper rail of the channel.

And the key to profiting from this oil situation is having the right timing. If you want to learn how to know when to buy ad sell, check out our Stock Code Breaker course. Or I can do this for you in my Value Hunter service.

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