Oil Futures: The Bloomberg Interview
By S.R. Nunnally
In this article
I looked over my notes and oil futures' charts hashing out my bullish stance in what would be described as “oil's downtrend.”
The last time I came on the show, oil was down near $50, and I called for a bounce to $60 or $62.
Augment your oil portfolio with short-term gains and hedge against a down turn.
Yesterday, I made my way to New York City to make an appearance on Bloomberg. The trip was hampered from the moment I woke up.
Here in Baltimore, we had two or three inches on the ground, and many county schools were closed. I rushed into work to get a head start on traffic and send an e-mail to Material Profits members and MP Wildcatter subscribers letting them know about my trip.
As I made my way to Baltimore's Penn Station, I was crossing my fingers, hoping my train wasn't delayed or cancelled.
Thankfully, it wasn't.
On board, I had two seats all to myself, and I looked over my notes and oil futures' charts hashing out my bullish stance in what would be described as “oil's downtrend.”
Oil Futures: Retracements, Amtrak Style
Just outside Philadelphia, the train stopped. For about 10 minutes, we sat there. Then the conductor came over the loudspeaker announcing a power outage up ahead. We'd have to retrace our route and get on another track.
By the time we started moving again, we were a full 40 minutes behind schedule.
After a few choice swear words mumbled under my breath -- which must have been louder than I thought, because the young lady across the isle shot me a look -- I called the producer and told him the situation.
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He said, “Thanks for the heads up, but I'm not sure how long we can hold your spot.”
Crap.
As soon as we pulled into New York's Penn Station (there are, like, five Penn Stations on this route), I push my way off the train. At least it's New York, and no one thinks twice about being bumped by someone in a suit and tennis shoes running through the station.
Oil Futures: The Mad Dash across Town
In the car, I call the producer again, and he said, “Don't worry about make-up and hair, just come directly to the set.”
Whew… I knew he was holding my spot for me, and as I dashed down the escalator in Bloomberg's super-phat studio (yes, I said phat), I pulled my hair back and painted on some lipstick.
Next, it was into the studio for them to prep my mic, and a quick question on where oil was (at $61.99), and we were on the air.
Oil Futures: Previously, on Bloomberg…
The last time I came on the show, oil was down near $50, and I called for a bounce to $60 or $62.
As it turns out, I was right, so where did I think oil was going from here?
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We looked at an oil futures chart for April contracts, and I noted a classic rise highlighting the Elliot Wave theory. This theory says that prices move in waves, and that uptrends show five wave “legs” before peaking and retracing with three wave legs.
April oil futures show one leg up starting from the bounce around $50 a barrel, then one leg down -- retracing only slightly the gains from the first leg.
Again, oil futures rose before seeing another slight retracement. In all, that's four legs of the five-leg wave: up, down, up, down.
The next leg -- if the theory holds true -- should be up.
There are other technical aspects that support a leg up, too.
Oil Futures: The Breakout
Through fall and into winter, we saw oil prices trade fairly range-bound, and that sets up a ridged line of defense. In other words, resistance. But that resistance won't be at its peak strength until oil reaches $65 a barrel.
That gives us a couple dollars worth of upside movement.
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Additionally, a down-sloping trend line connecting the highs from last summer to the high point just before the new year, passes directly through the second leg of the Elliot Wave.
What that means is that oil is already breaking out of its down trend. In fact, the fourth leg of the wave actually dropped far enough to test this former down trend, and find support to move higher.
That's exactly what oil prices did on Wednesday. It didn't hurt that we saw some bullish supply data that day either.
Oil Futures: How to Play the Move
In the second half of the interview we talked about how investors can play this limited move.
I suggested that because this recent action is bullish, I would continue to hold major oil positions, like Exxon Mobil (XOM:NYSE), ConocoPhillips (COP:NYSE) or Chevron (CVX:NYSE), for the long term, but perhaps take advantage of these short-wave patterns with options.
We took a look at the Energy Select Sector SPDR ETF (XLE:AMEX). We noted how it oscillates around the 50-day Moving Average, and that most times the XLE moves a couple dollars higher once it crosses above the Moving Average, and moves a couple dollars lower once it crosses below the MA.
The XLE has been trading horizontally ever since oil prices have seen a lot of volatility. To me, that means the XLE should continue this pattern so long as oil prices remain a bit unsteady.
This would be a great vehicle to play near-term options. Once the ETF crosses above the 50-day MA, buy calls. Make gains, take gains. Once the ETF crosses below the 50-day MA, buy puts. Make gains, take gains.
That way, you're augmenting your oil portfolio with these short-term gains, and, with the put options, hedging against a downturn.
You can watch my interview on Bloomberg here.
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Related Resources
Bloomberg Interview: Oil Downtrend
Oil Futures: Futures charts for commodities, currencies, and more. - Barchart.com
EIA: Energy Information Administration website