Traders chasing oil's price bounce should be listening to industry leaders and the message of the market. BP (LON:BP) CEO thinks the industry needs to prepare for lower for longer. A global economy plagued by chronic sub-growth and business-cycle transition from prosperity to liquidation that IMF incorrectly believes can be managed, even for the once highly self-sufficient Arab States, supports continuation of the mega glut, the swamping of the demand by growing global supplies, and mark down to cycle concentrations not seen since 1998, 1931-1932, 1915, and 1891.
Investors, largely driven by emotions rather than discipline, tend to focus on volatility rather than the message of the market. This tendency prevents them from recognizing better opportunities in quieter markets.
Insights constructs and interprets the message of the market, the flow of sentiment, price, leverage, and time in order to define trends within the cycle of accumulation and distribution for subscribers.
Summary
The BEAR (Price) and Bull (Leverage) trends under Q2 accumulation as as seasonal high approaches position crude oil as consolidation/profit-taking against the bear opportunity since the fourth week of March. Consolidation against the down impulse, often a precursor to change, tightens risk management for the bears. Consolidations reduce risk-taking until the trend becomes a focused bear or bull opportunity.
Price
Interactive Charts: USO (NYSE:USO), WTI
The long-term trend oscillator (LTCO) defines a down impulse from 34.96 to 11.82 since the third week of August 2014 (chart 1). The bears control the trend until reversed by a bullish crossover. Compression, the final phase of the CEC cycle, generally anticipates this change.
A close above 15.99 jumps the creek and transitions the trend from mark down to cause, while a close below 8.33 breaks the ice and maintains it.
Leverage
The long-term leverage oscillator (LTLO) defines a bull phase since the fourth week of March (chart 2). The bull phase, a conflicting message from the leadership of leverage and price, defines consolidation/profit-taking against the down impulse (see price). This has been tightening risk management for the bears for months.
A diffusion index (DI) of -2% defines Q2 accumulation (chart 3). A capitulation index (CAP) of 16% supports this message (chart 4). DI and CAP's trends, broader flows of leverage and sentiment from accumulation to distribution and fear to complacency supporting the bulls (red arrows), should not only continue to extreme concentrations but also restrain downside expectations until reversed (see price). A decline under these trends, a sign of weakness (SOW), would be bearish for oil longer-term.
Chart 3
Time/Cycle
The 5-year seasonal cycle defines weakness until the fourth week of June (chart 5). This path of least resistance restrains upside expectations (see price).
