Monday, October 24, 2016

2016.10.24 XOI.X Cycle Model Chart

XOI.X Cycle Model Chart

















The phase change to the right continues, though the pace may have slowed down. There is some information to be gathered from the predicted magnitude suggesting that going forwards, prices much lower than the current levels are highly unlikely. A previous iteration of the model is shown below and here on the blog.


2016.09.27 XOI.X Cycle Model Chart

11 comments:

Anonymous said...

Thanks Paolo - great work again!

It seems that expectations of a shakeout in crude oil are coming to pass, although the magnitude and timing is yet unknown. I suspect without any evidence that a low will come before the US elections proper, with the magnitude of the low being time-correlated. In other words, the longer a low takes to form the deeper it will be.

I've got two targets in mind: one shallow target not more than a dollar below current prices and just above the multi-week range before the pre-OPEC low; plus another target into the candle body of the OPEC breakout that moved very quickly indeed (almost too quickly for a lasting move).

The Z-score strongly suggests the potential for a trending move and a limited window to build positions that these levels, which might not be visited again for quite sometime - especially given the multi-week and multi-month balance of volume around these levels.

I think that a similar situation is evolving with gold, though I'm not trading that market (pulled my buy order) but may use any positive breakout as suggestive of something similar with oil (if it happens first).

Kind regards,

Mr. Anon

Paolo said...

Mr. Anon, thank you for your "value-added post" and for sharing your market expertise. P.

Unknown said...

Mr. Anon,

Brent opex today and production cut backtracking have put Brent near your 2nd choice, maybe it bleeds more tomorrow AM or some more this week...then your z move..you would think call volume would point it out a little

Anonymous said...

Hi Paolo,

I left another post here yesterday, but it seems to have disappeared?

In any case it seems that even my lower target may be exceeded due to political concerns - I'm now trailing buy orders above the last daily high, just in case a turn materialises before next Tuesday or Wednesday. There is a high-volume node (or area) around this area for the past two years:

https://pbs.twimg.com/media/CwNx2Z2WgAADMju.jpg:large

I don't think its likely however and WTI may visit $42/bbl in the meantime, where there is a slight volume void. Too hard to say given sentiment driven reactions across all related markets. The EIA report will likely result in an upward spike leading to new lows - far too risky to trade off except for the most nimble.

On the upside however, I was expecting a pop to new YTD highs just a few dollars above present YTD highs before a December correction of unknown magnitude. This might actually not materialise now or be minor with respect to an "assumed" post election pop.

Not really a time for longs this week, but the assumed rebound will be potentially potent. I did have a small short from late last week, but I pulled it far too early and API/EIA precludes attempting it again due to spike potential. Best to move to daily charts until later next week.

I note that gold has broken out, but oil has correlated closely with SPX, which should provide early warning of an oil turn.

Mr. Anon

Anonymous said...

Hi Paolo,

Looks like we might have seen the turn in WTI last Friday and partially confirmed yesterday. Naturally US elections will add some volatility, but scaling into long positions is the order of the week. I think getting positioned here in a sensible manner (on the continued assumption that this is the turning point) is the optimal approach, especially an anticipated upward move to current and hopefully new YTD highs might not be a straight trending move. On the downside, an unexpected US election result might cause a tag of the lower weekly Bollinger at $42 or $21 this and next week (until/if OPEC agree freeze or cut details).

Kind regards,

Mr. Anon

Anonymous said...

Oops - I meant $42 not $21 for the potential lower target, though I'm not sure if it'll be touched as the volatility from the US election result is high.

Mr. Anon

Chip said...

great charts, also since TRUMPY got in the baltic dry index is CRASHING UP. Have a look here ==> http://www.bit.ly/2f7gaUw

Normally that is a sign shifting will happen in sectors, and make for lots of money to be made. WOW!

Anonymous said...

"I'm not sure if [$42] it'll be touched as the volatility from the US election result is high." [Nov 9th]

Thanks Chip - great insight via the BDI; WTI tentatively looks like a bottom is in place, but scaling in is essential should one last touch towards $41 or $42 take place before the OPEC meeting. As previously stated, though I'm unsure of that prospect but one must be prepared for it.

COT data suggests that if the immediate low is not already in place, then it is imminent by November 30th when OPEC meets. I'd expect the technical agreement to be agreed before ratification then, with Russia and Saudi cooperation being the major pivot point.

The next upside target is $56-$58 into EoY or Q1-2017. WTI needs to close above $46 or so THIS month, else sustained weakness can be expected for the foreseeable future.

Mr. Anon

Anonymous said...

"The next upside target is $56-$58 into EoY or Q1-2017. WTI needs to close above $46 or so THIS month, else sustained weakness can be expected for the foreseeable future." [Nov 15th]

It seems we have a breakout of WTI from its recent range of the past two weeks, coinciding with my expectation that SPX will reach and breach 2200 (though I don't trade equity indices anymore). My unevidenced biased expectation is that SPX, with perhaps WTI in close correlation will rally into EoY ($56 to $58) and fall into the US Inauguration Day on 20th January. I'm expecting any potential OPEC deal to put a floor under prices, but to struggle to boost prices unless USD consistently falls or world demand offsets US shale increases from higher prices.

USO as a proxy for WTI and also XOI has gapped up over the weekend. Statistics strongly suggest a gap fill at some point: over the past 10 years, there have been 218 total gaps with 216 filled and 2 not filled. The unfilled gaps are from last Tuesday and April earlier this year. Nearly all gaps fill within several days (most within 24 hours) with massive skew for those that don't (hundreds of days). I'm confident that if the gap doesn't fill by EoM, then it won't fill for quite sometime (beyond the horizon for swing trading).

The EoM close is crucial with $46 being a key milestone (on a closing basis) for continued gains following any natural correction or profit taking. I'm of the biased and unevidenced view that inflation expectations and dollar weakness (from US infrastructure stimulus) will drive WTI prices, along with US indices in general to even higher highs, beyond "reasonable expectations" following a correction that many will herald as the "beginning of the end".

The key is price action and its technical context, regardless of the details regarding the OPEC deal (or not) as it could be spun any number of ways. Early positioning is critical now as the peak before an eventual correction is unknown, even though it's expected to be $56 to $58.

Mr. Anon

Paolo said...

My USO neural model which went long on 9/30/2016 and short on 10/18/2016 went long again on 11/17/2016.

Anonymous said...

Thanks Paolo - I'd be keen to learn when your USO neural model goes short! The low-volatility trend day yesterday and overnight session probably caught out a lot of shorters. I'm expecting some consolidation into US pit open before another opportunity for long position building.

Mr. Anon