Be Careful of "Smells Like a Bottom"

In just about every USO update we have had since seeing the probability of a bounce, one that is likely not over yet, despite a pullback, I have kept the caveat in every post that this looks like a great counter trend move, but not a bottom.

I'm not saying that this can't turn in to a bottom, but to forecast that now is to guess as to whether it will be clear, sunny or partly cloudy exactly 94 days from now, the evidence is not there, so when Cramer says that "This (oil) smells like a bottom", let me just share with you what happened last time Cramer and I disagreed on the trend in oil and I'm not at all saying that he's inferior in his analysis, I just believe he might just have different motivations as Goldman Sachs Alumni.

 As for the trend in USO (2-day chart), there's almost always some proportionality between a top, its trend and the bottom, this bottom being an actual bottom would be a "V" reversal and these are very uncommon, they usually show up when there's a surprise fundamental event that the market did not discount, for instance say OPEC came out after the market today and said they'd cut back production, that would be the kind of event that would generate a "V" reversal or a reversal event rather than process, but I don't think you can predict that any more than you can what the weather will be like 94 days from now. There's no evidence, thus anything beyond that is essentially "red or black".

The long term 3C chart also has not built the kind of bottom that would support an actual bottom, it has done enough for a counter trend rally, but not a bottom.

Last time we disagreed, I was calling for a top in oil in 2008 baed on 3C charts and some fundamental events that were coming up on us, namely a presidential election. Cramer came out the same week that we were calling for a top and told his viewers that they should buy oil if the next EIA report comes in bad and  sends oil down and that this was a "Contrarian trade".

First, this is what oil looked like at the time...

 After the huge move during the Bush years, Republicans needed to win the presidency and high oil wasn't going to help, this was several months before the election and we saw strong signals that oil was headed lower.

At the same time Cramer told his viewers to buy on any dip and again, it was a contrarian trade. Now I don't know how many viewers Cramer has, I am aware of the "Cramer effect" of stocks moving the next day after he talks about them on his show, in other words people just chasing price. However I have no idea how all of these viewers doing the same thing at the same time could possibly be viewed as contrarian, it could however be viewed as giving smart money like GS the opportunity to sell in to price strength on a dip in oil which they don't want to and often can't sell in to and of course Cramer is GS alumni, I just kind of wonder where his loyalties lay, to those in power that can change his life when he needs a favor or with the nameless m, faceless masses that watch his show.

In any case, within weeks of our top call, Oil made a -80% decline, around the same time Cramer was saying, "Buy, buy , buy!"

Here's what happened after... -80%

In any case, I'd wait for evidence before saying I smell a bottom.