Traders chasing oil's bounce should be listening to industry leaders and the message of the market. BP (LON:BP) CEO says I do think 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 (see Monthly Review of crude oil).
Summary
The BEAR (Price) and BEAR (Leverage) trends under Q2 accumulation as as seasonal high approaches position crude oil as consolidation/profit-taking against an aging bear opportunity.
Price
Interactive Charts: USO (NYSE:USO), USO PF, WTI
A negative long-term trend oscillator (LTCO) defines a down impulse from 34.96 to 10.03 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 mark down.
Chart 1
Leverage
A negative 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, suggests consolidation/profit-taking against the down impulse (see price).
A diffusion index (DI) of -2% defines Q2 accumulation (chart 3). A capitulation index (CAP) of 22% 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 2
Chart 3
Chart 4
Time/Cycle
The 5-year seasonal cycle defines strength until the fourth week of April (chart 5). This path of least resistance restrains downside expectations (see price).
Chart 5