I’m sitting at a Miami airport bar watching the Knicks game and looking at charts. It’s been a nightmare of a travel day. There’s a topic I wasn’t prepared to talk about, but now think I’m going to have to: Oil and gas, says Steve Strazza, director of research at AllStarCharts.
Everyone hates it right now. Meanwhile, the smart money is as long as they’ve been in years and prices are digging in. The bears can’t bury crude oil and friends. They’ve had every chance to do it.
Here’s a look at crude futures – along with heating oil and gasoline. The charts are in order based on their recent relative strength.
As one would expect, the price of oil and its derivatives tend to move together over time. We never want to make the bet that these trends move in different directions for too long.
In other words, if gasoline and heating oil complete tops, it’s logical to anticipate crude to follow. But the opposite is happening right now.
Gas is refusing to break down from a multi-year distribution pattern...just as heating oil is reclaiming a key level. They are both above support and rebounding higher.
At the same time, crude is sitting right at a shelf of former support that it recently broke through. However, since it happened a few weeks ago, there’s been very little downside follow through. I’m making the bet that crude scoops and scores here.
I think it should look a lot more like its derivative plays soon, back in its old range. And I think we can get a fast move back toward the upper bounds from there. I’m talking about a big rally that sends crude back to the $80s or $90s.
We’re seeing similar patterns play out in energy stocks lately. And they were great tells recently, sporting bullish divergences at the lows and leading energy futures higher. I think energy stocks will be right again this time.
