‘A Bubblin’ Crude

There’s an old saying that Generals are always fighting the last war.  In similar fashion, many stock market participants do the same thing.  Since the great market swoon in December of last year, market pundits on video and print media obsess about the return to the new lows, or at least a test thereof.  The most common discussion now is the situation of the major indices which happen to be poised at significant levels of resistance.  Maybe.  But obsessing over the actions of just the major indices can make people miss a lot of the action that is occurring in sub-sectors and specific industry groups.

We mentioned in a previous posting that many stocks are actually trading at or near new all time highs including some of the pharmaceutical companies with very strong relative strength: LLY and MRK for example.  Many of the semi conductor stocks such as XLNX have snapped back sharply and even pushed to new highs.  Even old stalwart INTC is making new highs and poised to go much higher in my view.  The stock market is not just the high profile names of AAPL and AMZN.  As I’ve tried to demonstrate over the years, objectively running various types of market scans can reveal opportunities that are not always in the popular view.

A recent scan searching for certain characteristics (in this case a combination of high readings on Bollinger bands, increasing OBV and favorable momentum statistics along with favorable chart set ups) reveals one conspicuously percolating group that few expect to move; oil.  While certainly crude oil has been in a bearish trend for many years now, price action in some bell-weather issues are all pointing to accumulation happening in this sector.  Displayed below is a proxy for this group, the Bloomberg Ultra Crude Oil Etf, UCO.

I’ve indicated on the chart the pieces of technical clues that point to an expected upside move in this security.  By no means however is this the only example.  In no particular order and without being completely inclusive, the charts of:  MRO, SU, CNQ.TO, XEG.TO, WPX, XLE, ARX.TO, HOU.TO and DVN all have similar appearances to the UCO chart displayed above.  When so many issues from the same group show up in a general scan, it’s a clue that big money is moving into these issues for reasons which will only be clear way after the fact.

It’s worth noting how many of these are Canadian issues.  It appears that money from institutions are making directional bets on oil prices.  One of the best aspects of these trades are that they are nearer to historic lows than historic highs.  They are not momentum trades but rather are expectations that a turn is at hand.  The stop points for all of these issues are very close making the risk reward even more compelling.

As in all trades, each one requires an assessment of risk, both systematic and non systematic.  Some of these issues may be illiquid, so may not be suitable.  For those really willing to accept more than the regular amount of risk, UWT is the most speculative of the group.  This is one of those 3X multiplier etfs which can make you a hero or a zero in very short order.  Not for widows, orphans, or people on ventilators.


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