The cycle of accumulation and distribution defines cause (building) within a broader mark down phase. A growing majority sees the countertrend rally as the end of mark down (bear market) and beginning of mark up (bull market). Conversely, a dwindling minority cites hedge funds losing faith, fundamentals, or similar as reasons why the rally is doomed. These interpretations, mostly opinion driven, are premature.
Investors that follow opinion often chase their tails in timing. They must follow the message of the market driven by the invisible hand. Oil's countertrend rally, defined by the flow of price, leverage, and time, represents cause building necessary to jump the creek of resistance or break the ice of support.
Trend
Positive trend oscillators define an up impulse and rally from 53.23 to 60.34 since the second week of April (chart 1). The bulls control the trend until this impulse is reversed.
A weekly close above 59.52 jumps the creek and extends the countertrend rally within cause (see chart 2A also). A close below 45.89 confirms continuation of mark down.
Chart 1
Leverage
The flow of leverage defines bear phase since July of 2014 (chart 2). A DI2 close above its March 2014 high reverses the phase. A DI2 close above its April 2015 high confirms continuation of the bear phase.
A DI of 11% defines a bullish bias trending towards neutrality. A capitulation index (CAP) of 23%, a neutral reading within a bullish oscillation from fear to complacency, supports DI's message (chart 2A).
DI and CAP's neutral position refute the claim that the oil rally, defined by complacency, is over. It's not. The rally ends when yesterday's bears become tomorrow's bulls. DI and CAP define this transfer as the transition from fear and accumulation to complacency and distribution.
Chart 2
Chart 2A
Negative leverage oscillators define a down impulse that opposes the bear phase and supports the bull trend (chart 3).
Chart 3
Time/Cycle
The 5-year seasonal cycle defines weakness until the fourth week of June (chart 4). Smart money using DI and CAP as a guide (see leverage) recognize the summer transition (late July) as a probable shorting window.
Chart 4