Crude oil continued to slide last week and data from the Commitment of Traders report revealed a 7.8 percent drop in the speculative long positions. However speculative long position in crude oil are still quite high. The United States Oil Fund LP (ETF) USO dropped over 6 percent while the SPDR S&P Oil & Gas Explore & Prod. XOP was down just slightly last week.
The poor performance of the energy stocks has made many portfolios lag so far this year and many are wondering where crude oil or the energy stocks might bottom. To analyze the crude oil market I do pay attention to the COT data as the speculative long positions peaked on February 24 as July crude was at $54.76.
This peak is identified on the chart of June Crude oil and also shows that just twelve days later crude oil had dropped over $6 per barrel. I do pay more attention to the technical studies, especially the Herrick Payoff Index (HPI) , that is the focus of many of my mentoring sessions.
The HPI uses volume, open interest and the price action to determine the trend of money flow. When the HPI is above zero the money flow is positive and if below zero it is negative. As the % of speculative longs were peaking money flow was weak as it was moving above and below the zero line.
The HPI plunged in March but while crude oil was making lower lows in late March-early April (line a) the HPI was forming higher lows, line b, or a bullish divergence. The HPI did move back above its 21 day WMA on March 23 two days before crude oil made its low. The HPI moved above the zero line on April 3rd (line 1) and crude rallied above $54 in the next seven days before it peaked.
The money flow turned back to negative on April 19, line 2, and the HPI is still well below its WMA. It will take a number of days before it could turn positive. The weekly HPI (not shown) is below the zero line and its WMA as it has been negative since the middle of January. As I teach in my classes the most powerful signals, like in early 2016, occur when the weekly and daily HPI analysis are in a agreement.
The key levels to watch are the yearly pivot for crude oil at $48.52 while the 50 percent retracement support from the early 2016 low is at $47.69. The May monthly pivot support and the daily starc-band are in the $47.30 area.
The SPDR S&P Oil & Gas has been my favorite investing and trading ETF over the years. As of last Friday's close it was down 22 PERCENT from the December 2016 high at $44.80. XOP has already dropped below the 38.2 percent Fibonacci support from the early 2016 low with the 50 percent support at $33.31. As I commented to Viper ETF clients on Monday "There is quarterly pivot support at $33.77 with May monthly pivot support at $33.52."
The weekly relative performance (RS) dropped below support, line a, in February and it continues to make lower lows. This indicates that it is still acting weaker than the Spyder Trust (SPY). The daily RS shows no signs yet of a bottom as it is below its WMA.
The weekly on-balance-volume (OBV) violated its WMA and the support, line b, in February. The OBV also made new lows last week but the daily OBV (not shown) has not yet. New positive signals from the daily OBV will be a sign to trade from the long side.
The technical analysis on crude oil and XOP indicates that a bottom could be formed in the next few weeks. A drop to new corrections lows is possible before a low is in place and this is a market I am watching closely.
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