That doesn't really imply a target though because we don't know what the average price really is and we don't know what the purpose of this bounce is. It could be a quick run for some cash or it could be a scare bounce which is akin to a false breakout or a bull/bear trap. The idea of a scare bounce will be to squeeze shorts, bring in buyers, then take it down. Buyers sell, shorts jump in and you have a serious imbalance between supply and demand. With a market flooded with supply, prices move down quickly. If it is that kind of bounce and we'll only know by seeing how far it swings, then it would set up a good short sale trade. It's kind of my "Judo-Market Theory", use your opponent's momentum against them.
I'd guess we'll see at least $34 in USO.
6 comments:
Thanks for the chart Brandt.
So, just to be clear on the most probable outcome, you see this as purely a 'bounce' on an overall bigger picture downward trend for the oil price?
What is the 'big picture' trend for oil? Down? So, 3C suggests we won't see $100 dollar a barrell again, in say, the next 3-6 months?
My main reasoning for thinking maybe oil could go much higher is historic precedents. i.e. when a country is on it's knees, and close to running out of options, then the only options left are:
a) The old scam of taking the country to war, i.e. with Iran, to stimulate growth and try and get the citizens to forget their troubles at home and rally round the good old gubbermint. (good for oil) .
b) The FED printing a hole lot more fresh new US dollars (good for commodities priced in US dollars, like oil).
Thoughts?
My best guess is that oil stays rangebound-$68-$83/$86. I feel the dollar will gain over the next several months, on the Dollar index, I'd guess $85 which should send oil back down near it's lows, assuming monetary policy doesn't get real whacky. I think OPEC countries have to keep it somewhat stable for a lot of reasons. If 3C were to show something really strong-most indicators don't work well in a range-especially cumulative types-then I'd change my outlook, but I think macro-economically speaking, there will be pressure to keep oil relatively stable. I don't see any huge runs in the near future and I don't think OPEC countries can let it slip too much as they have their own national interests. Just my 2 cents.
On another note, 3C did call the end of the uptrend back in July of 2008 within a week, that's pretty good considering it was a 5+ year uptrend. As I commented on Cramer's bearish comments yesterday during his "stop Trading" segment, I mentioned that I view them pretty much as a counter indication in the short term, they were. Interestingly the same week I called the oil bubble, he was telling his viewers to be "contrarian" and buy the next bad Wednesday report-they all got screwed. So 3C can call oil, but it's not saying anything right now.
Is C3 still showing large neg divergence on the S&P from a long term view. I feel that try to catch every little move like a day trader sometimes takes away the view from core positions.
Yes, the market is still primarily bearish, that's where we will make our money. This is just a bounce and not very important in the longer view of things. I hold my core shorts even through the bounces or rallies like July, I like to keep 25% in cash for counter trend moves like this, but you are correct in our main strategy and yes, the market looks horrible. However, every major market crash will still have bounces like this.
Brandt,
Obviously not holding you to anything, but care to give us a probable estimate to at which price you see the DJIA, SPY, etc at year end, 2010?
Just so i can get a mental picture of how fast/slow you think the overall decline will be over the coming months.
The longer out you try to project, the less reliable your projection. I will say this, I did a 5-part video series on bubbles before anyone really considered what may happen to housing, they were still talking about Dow 20,000. I did really intensive analysis and if I remember correctly, I think I had an "eventual"-no timetable- target on the Dow of 5500
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