Energy Sector/Oil Update

I've had a number of requests for both crude (USO/Brent) updates as well as the energy sector more broadly, XLE. I'm going to try to cover what I think is significant because there are more than just trade ideas (or not) apparent in what we are seeing, there are broad macro-economic concepts that will have an effect not only on the economy (which is what they are reflecting), but the market as the economy goes. So please forgive all of the charts, but there's a continuity between them and there are some possibilities, although I'd say nearly all are extremely speculative.

First, I'm going to show you XLE, which is the S&P Energy Sector which broadly includes oil, gas as well as services such as exploration, pipelines, drillers, transportation, storage, etc.

XLE (Energy Sector)

 Fist on this weekly chart one of the themes you'll see over and over whether we look at the entire sector, the services side or the oil/crude side is this channel through 2012-2014 and a type of  head fake move called a "Channel Buster" which , as usual with transitional areas, looks very bullish as the upside ROC increases, but they are red flags telling you that you are transitioning in to a stage 3 top, thus this is a great time to tighten up stops, take partial profits, etc., but understand that what you see and what you'll eventually get are two very different things.

The failure of the Channel Buster to maintain above the channel (which almost always happens), leads to stops that are just inside the channel being hit as price comes back down, which creates a rapid sell-off usually piercing the bottom of the channel, "From failed moves come fast reversals", and again it's a type of head fake move that is specifically there to generate a momentum move (down here) without having to get too involved in selling large quantities of shares , you just let the stops do the work just like a short squeeze.

You'll notice this pattern is common in Energy related issues. *This also looks like a double top, commodities tend not to see the same level of head fake moves (on the larger double top) as individual equities and I think that's because there's true fundamentals that move price, real supply and demand.

Here's a closer view on a daily chart of XLE breaking both the Channel Buster, the decline through the bottom of the mullti-year channel (talk about a change in character) as well as the resistance/support of the long term double top.

However notice the last 2 days' candlesticks, bullish reversal, hammer like candles.

These carry no target or duration estimation except to say if you saw it on a 5-day chart, you'd expect the reversal to last at least 1 bar, a week.

 The daily XLE 3C chart shows the channel pretty much in line, but horrendous distribution in to mid-2014 with a leading negative divegrence on one of the strongest charts we have-DAILY.

The 60 min chart is clearly confirming the daily chart.

Everything between that 60 min and this 5 min is negative, in fact the 5 min is probably the best looking as it is in line or confirming the price trend and not leading negative, but I don't see anything worthwhile beyond the candlesticks if there's not even a 5 min positive divergence.

DJUSEN- Dow Jones Oil & Gas Index...

 Again on a weekly chart, the first thing that jumps out is the channel, the red flag Channel Buster and its failure, if nothing else, this is a textbook Channel Buster, which is one of our concepts, not particularly a technical analysis concept as they look for the downside break first and miss the head fake part and how and why the head fake generates its own momentum.

 Here's a closer look on a daily chart, the yellow arrow representing the head fake Channel Buster, as soon as it fails, there's a strong downside move that penetrates the lower channel.  Also note the two days' bullish candles right below former support, now resistance.

This is about the best trade signal I can see and I think the probability is up for a short term move, but there's a difference between a probability and a high probability/low risk trade with good potential returns.

The daily 3C chart looks a lot like XLE's, CLEAR distribution on a huge scale as a daily chart is one of the largest signs of underlying trade.

OIH  Oil Services...

 And once again on a 5-day chart, the trend is your friend until the end when it starts to bend.

And the multi-day (3) 3C chart, again with the same heavy distribution.

While Energy the above Energy 3C charts don't look good, at some point demand will come back unlike an equity that could just go broke, but this is a strong sign.

What this tells me is that all of the ISM and PMI manufacturing and services data are on target, there's less demand for energy as there's less demand for goods and products as seen in manufacturing and services economic data, thus the probability of a European Triple Dip recession is high. The probability of China seeing a bubble explode and go through the first significant change from a growth story to a country facing the problems every one else has (as China is not outsourcing labor due to higher wages in China).

My point is simple, this one chart is telling you a lot about the global economy which in turn, in the absence of F_E_D free money, is telling you a lot about the stock market and all of the potential spider web cracks that we always fail to imagine.

 A closer look at OIH on a daily chart shows the same two day, bullish reversal candlesticks, they are in a good area for a reversal as short stops will be triggered on a move inside the channel and a squeeze is likely, IF it can get going that far.

 OIH, 60 min chart with distribution and enough accumulation to create more distribution in to better prices.

USDX-US Dollar Index.  The Historical Legacy Arbitrage relationship between $USD and $USD denominated assets has been gone for almost 6 years as the F_E_D devalued the $USD with money printing, ironically, doing the most damage to the people who were the most responsible, savers. Not only did the F_E_D cut the value of their savings through dilution / printing, but then forced them to seek some yield as the F_E_D has set Zero Interest Rates for 5 years, causing many to chase assets they have no idea how to trade including Junk Bonds/Credit, thus further endangering the most responsible people while the scam banks that are "Too big to prosecute"
 (Holder should have been fired that day) have been giving BILLIONS in near risk free money.

In any case, as POMO/QE winds down and ends this month, the $USD historical relationship is ever increasing, higher $USD should mean lower oil, gold, silver and stocks while a lower $USD means the opposite.

The daily $USDX chart shows a new high not seen since June of 2010 as F_E_D policy begins to normalize.

However there is a 60 min negative, I don't think it's ready to fire off yet as we don't have solid multiple timeframe confirmation yet.

This is the 5 min chart still in line with a recent positive divegrence sending it higher today.

Intraday there's some distribution, but this isn't useful beyond today.

If I see the $USD negative on 5, 15 and 30 min charts, then I would say, we'd probably have a sizable base in Energy related issues and a solid chance for an upside trade, although I would view it as a trade only, not a long term position like UNG.

USO-WTI Crude

 Here we have a similar Double top as seen above on a daily chart.

 Here's the daily downtrend and a recent break below what looks like a head fake area .

Also increasing volume suggests there's going to be some change in trend shortly.

USO Daily 3C chart shows the cycle of accumulation and distribution, but this is a different cycle than a stock, this is an asset that has fundamentals based on supply and demand, not accounting gimmicks, buy backs, insane fP/E multiples and largely moving on sentiment. So the accumulation and distribution here is not part of a wider pattern, it's just the season for oil demand and the season when it dissipates.

This is a hard trend to trade against long.

 BNO-Brent Crude (USO is WTI)

 The BNO 30 min chart is perfectly in line with the downtrend, confirmation.

The USO 30 min is the same after distribution.

I don't see any charts that are strong enough to risk a long position here.

I can see the chance of a larger base being made and within that base those hammer candlesticks may be a part of creating the base and perhaps they do fire off to the upside, but I don't see any support for anything sustained beyond a couple of days based on the candlestick ONLY, no 3C support.

And Finally...

CL...Brent Crude Oil Futures

 This is the 4 hour chart, perfectly in line with the decline

 The 15 min chart is the first place I see any possible positive divergence and it's short, maybe along the lines of the Hammer Candlesticks creating a reversal, but again there's no target on a candlestick reversal, it could be a single day.

 The 5 min chart shows NOTHING, this is my minimum chart for a long and there's nothing there.

Intraday 1 min, also nothing other than downside confirmation.

At best, from my perspective, unless you want to try to trade the candlestick probabilities, the best we can hope for in the near future is some lateral trade and a base being built for a pop to the upside, I think it would be an oversold bounce, but although we may be oin oversold territory or we may not, I don't see any support anywhere in the energy complex other than Natural Gas.

I'd stay away personally. However, I would consider what these charts are telling you about the global economy and how that impacts the stock market as well as our businesses, our homes, our every day life.