How to Trade the Price of Crude Oil

My high level thoughts are as follows:

Oil ($WTIC) will bottom out somewhere in the $20 range (when, I don’t know). OPEC is flooding the market with hundreds of thousands of barrels each day to force the price down to the point where most if not all American companies are forced to cease operations. The bankruptcies are already piling up from 2015 and will accelerate in 2016. Once the majority close shop, OPEC will pull back production and the price will increase (perhaps rapidly).

2016_02-06_WTIC-wkly

As it stands today, most American shale companies require crude to be at $60 per barrel to stay profitable. The leaders are getting by, by using efficient methods but the break-even point is still well above the current price level of crude oil.

Another thing we should watch is the proxy war between Saudi Arabia and Iran (hat tip to a friend on this perspective). When Iranian crude comes on-line, prices will drop again. Maybe that sends prices below $20 (unless already priced into the market, which it probably is). The United States and Russia will be squeezed tremendously, the question is, will the US bail out or prop up their oil companies (my guess is no, as that would be highly political, being oil companies). When gauging public opinion: propping up GM in 2008 is a lot different than bailing out the “big bad (& rich)” oil companies.

Bottom line: oil is not at the bottom yet and prices can drag along the bottom for a long, long time. But in the end, oil will come back up (it’s a matter of how long will that take). We just need to find the best vehicle to place this trade at the right time.

Do we do this using ETFs, leveraged ETFs (short term), futures, specific equities, etc.
Perhaps a combination of all of them, depending on the time frame of the trade.

I see crude a lot higher than it is today, 12, 18 and 24 months into the future but I haven’t determined the correct vehicle to make this longer term trade (ETFs decay, futures aren’t my game and individual equities are risky). I’ll keep you posted on my moves…

Charts: $WTIC $USO $UWTI $DWIT $XLE

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2016_02-06_USO-daily

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Trading DXO on Twitter

I have blogged and twittered about DXO for almost eight months now and nailed both the entry and exit points of the trade. I really nailed the exit (lock in gains) for the twitter community even though I sold earlier. I tweeted the day before and the day after the ETN topped and told everyone that it was a good idea to lock in gains “here”. Take a look back at the tweets and view the chart where I was making calls on DXO. See, twitter is valuable when people use it correctly.

7/11/09: DXO – $3.48, down more than 26% from sell calls. DXO gained more than 74% from my first twitter buy calls

Who says charts don’t work?

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  • 7/6/09: $DXO – 3.90, down 18% since my sell tweets in June. 6/10 @ 4.67 & 6/12 @ $4.76. Always ignore analysts, never ignore charts! 10:04 AM Jul 6th from web
  • 7/6/09: RT 6/12/09 @cperruna $DXO – $4.76, “talking heads” now debating $250 oil prices…charts are saying resistance in this area. Lock in gains. 8:29 AM Jul 6th from web
  • 6/12/09: $DXO – $4.76, “talking heads” now debating $250 oil prices but the charts are saying resistance in this area. Lock in gains. 6:38 AM Jun 12th from StockTwits
  • 6/10/09: $DXO – $4.67, up 72% from 4/20 $2.72 twitter coverage. Lock in gains here, resistance above at 200d ma 11:18 PM Jun 10th from StockTwits
  • 5/29/09: $DXO – $4.21, talk about blast off above $3.75 breakout. Made nice profit but sold too soon, ignoring my own chart analysis. Entry is gone 12:00 PM May 29th from StockTwits
  • 5/29/09: $DXO – $4.03, it blasted past the $3.75 triple top breakout point, highlighted in this blog post, see P&F chart http://bit.ly/wTjX 9:07 AM May 29th from StockTwits
  • 5/26/09: $DXO – $3.79, cashing in profits. See April twits on DXO, buy at $2.72. 11:00 PM May 26th from StockTwits
  • 4/20/09: $DXO – $2.72, the gap has filled, down 10% on heavy volume in early trade. 50d ma is at $2.62 (support entry?). 9:38 AM Apr 20th from StockTwits
  • 4/6/09: $DXO – I am looking for the gap to fill down near $2.70; will grab short term shares between $2.50 – $2.70. Moving ave support at $2.55 8:26 PM Apr 6th from StockTwits
  • 3/30/09: $DXO is dropping back to the moving average – watch it for setup 8:59 PM Mar 30th from StockTwits

2/09/09 Blog Post:

Play with fire and you get burned – that’s what they say. I guess it doesn’t appear to be smart to leverage yourself (2x’s) with crude oil futures through an ETN but that’s precisely what I started to do in December. My tool of choice: DXO Oil Double Long ETN

It’s still the trade that intrigues me the most…

I grabbed shares that represented 25% of my typical position size so my risk is greatly limited but I am looking to add shares, only this time with an official buy signal…the current charts are showing that potential with a jump above the moving average or a breakout on the point and figure chart.

A strong move above $3.75 on the point and figure chart will be a major buy signal, especially if it is accompanied with heavy volume.

I’ll be honest; it might be too early (still) as the chart could drag along the bottom of the moving average for months before it decides to pick a direction. However, when it does, I’ll be ready to pounce and add shares to my first position.

Let’s wait and see but don’t let this one off of you watch list.

Oil Double Long ETN (DXO)

Play with fire and you get burned – that’s what they say. I guess it doesn’t appear to be smart to leverage yourself (2x’s) with crude oil futures through an ETN but that’s precisely what I started to do in December. My tool of choice: DXO Oil Double Long ETN

020809_dxo_wkly

It’s still the trade that intrigues me the most. The official buy signal that we look for on this blog has not triggered so yes, I am playing with fire. I considered the position a “value play” in December and that is the truth but I also admit that I have not followed my traditional rules of entering a position.

I grabbed shares that represented 25% of my typical position size so my risk is greatly limited but I am looking to add shares, only this time with an official buy signal. I did not get a signal to enter DXO but the current charts are showing that potential with a jump above the moving average or abreakout on the point and figure chart.

A strong move above $3.75 on the point and figure chart will be a major buy signal, especially if it is accompanied with heavy volume. Buyers and sellers are struggling to take control of the commodity as the economic turmoil attempts to give us some type of direction across all markets.

020809_dxo_pnf

I’ll be honest; it might be too early (still) as the chart could drag along the bottom of the moving average for months before it decides to pick a direction. However, when it does, I’ll be ready to pounce and add shares to my first position.

Let’s wait and see but don’t let this one off of you watch list.

What is a point and figure chart? Click here to learn!

020809_dxo_daily

Dollar & Oil both Dropping

Headlines:

DOLLAR IN NEW SPIRAL…

…biggest one-day slide against euro

OPEC deepest oil cut to rescue prices…

YET PRICE TUMBLES BELOW $40 FOR FIRST TIME SINCE ’04…

Let the charts do the talking…

Dollar falls, Crude up

The US Dollar violated the 50-day moving average for the first time in five months while the Euro Dollar crossed back above its 50-day moving average during the same period of time. Crude oil was up 10% as it closed above $48 a barrel and the ETN I highlighted from last week is now up 30% from its low. I do own 1/3 of my position in DXO but I can’t say I caught it below $3. I highlighted the three investments last week in a post titled:

12/02/08: Dollars, T-Bonds and Crude Oil

I started to mention Oil as a possible value buy in November:
11/26/08: Oil a Value Buy?

Here’s what I was thinking:

I mentioned my idea last week: Crude Oil ETN’s. My wife and I have agreed to start purchasing a stake in crude oil investments, starting this week with a 25% purchase of our fully anticipated position (DXO is the instrument). The crude oil charts have not turned positive and I have not received any buy signals such as the ones I highlighted in the dollar earlier this year but I am viewing this more from a value perspective rather than technical. Maybe I will strikeout big time but I am swinging for it anyway.

Too many Middle East talking-heads want to cut production and raise the price of oil. Maybe I am extremely early to this “rebound/ bottom-picking game” but I can’t seem to reason how oil will stay low for long (talking years here, not a short term position).

It will be fun to see how this plays out.