The all new OIL thread....

[GotGold]

I'm doing well trading oil futures...

This is a very tradable bull market which will run and run.
There is massive support at every major level under $50

I'm going to buy and hold on every decent pull back. This is the only way to make money in a strong bull. Trading in and out rarely works well.

QUESTION

What is the lowest oil can go to from here on?
I'm thinking $40 max

 

[Roberto]

I'm doing well trading oil futures...

That's good ... I've been looking and thinking. Not a market that comes naturally to me because for some reason (perhaps completely irrational and inaccurate) I think of the oil market as being solely driven by fundamentals, and therefore not really relevant to me because almost all my trading is based on technicals.

This is a very tradable bull market which will run and run.
There is massive support at every major level under $50

Interesting ... I should be doing less looking and thinking and more trading, probably.

I'm going to buy and hold on every decent pull back. This is the only way to make money in a strong bull. Trading in and out rarely works well.

Agreed: this must be the right approach. Thanks for bringing it to our attention!

 

[GotGold]

What do you mean by a market 'driven by technicals'?

 

[Roberto]

What do you mean by a market 'driven by technicals'?

I have no idea what it means: I didn't say that. I described my perception of the oil market, perhaps rather loosely, as being "driven by fundamentals". This is true of all markets, in a sense, n'est-ce pas? I could probably have expressed it better by describing my perception of the oil market as having its trading opportunities driven by fundamentals, anyway.

 

[GotGold]

Roberto
Sorry.
Didn't read your post properly...

 

[LION63]

GotGold and Roberto,

One question which I would like to ask is would a falling Dollar make you adjust your price levels or would you consider that a minor distraction?

 

[Roberto]

Another roaring good question, Lion. I don't know. But I'm very bearish indeed on the dollar and it's among the things I'm wondering about. What would you say? (Will be interesting to see what GotGold says, too ... he's usually not far off the mark, in my experience!).

 

[GotGold]

OK, Thanks for the responses.

We always need to return back to the basics when oil is concerned.
3 PILLARS OF BULLISHNESS

1/ Well reported supply and demand credentials. Finite, non renewable asset which is already half used up. Demand is soaring year on year.

2/ Falling dollar is very bullish for oil. If you trade this bull £ per point, then you cash in on this.

3/ Increased speculative interest (were talking about it arn't we?). Big players are fulling the futures market, they know its a one way street ( in the long term). Thats why margin requirements were recently increased, to try and dampen down the spec interest.

 

[GotGold]

Now for the Bearish Scenarios:

1/ Surprise decrease in demand due to a severe world recession or the invention of a better energy source.

2/ Strength in the dollar. Markets can and will surprise us.

3/ Profit taking and/or the retreat of speculators from the market

4/ Major new supplies coming on tap.

We could talk about any of these in detail of course.
Any trade whether it be a fundamental or technical trade involves the weighing of both the bull and bear cases.

The battle rages....we must choose our side.

 

[LION63]

Gentlemen, thank you for the responses.

I agree that if you trade oil in £s as opposed to $s you get an extra kick when the price of oil rises and the Dollar falls. My personal belief is that the more the Dollar falls the higher the floor of oil in Dollar terms becomes.

GotGold, your analysis was way beyond my expectations, it sums up the bullish case for oil. Doubtless there are those who feel there is about $15 per barrel of speculative pricing at $55 (currently $10) but that is an assumption whilst you have dealt in facts. There is a high probability that once traders get used to the higher margin requirements (Which I believe is a poor attempt at price fixing.) and the profit takers are out of the market, the price will reach new highs.

 

[GotGold]

The 3 bullish cases listed above are very very positive for this market.
So i've decided to trade this market from the long side.

Here is one way to do it:
50 SMA has been working well for approx entries.
Sure, there is no guarantee this will continue, but thats TA for you.

The fundamentals of oil represent good opportunity to use your TA for long entries and exits. Its a heck of a lot easier when your playing just one side of a market.
Think back to the NAS bubble, you would have made puny profits if you had tried to play the trending market from both sides.

 

[LION63]

GotGold,

The bearish case is not without its merits and I will attempt to deal with each one briefly:-

1. A decrease in demand due to a global downturn is a nightmare scenario for the bulls and who knows
how low prices may fall as a result. Without demand, the bullish case is shot to pieces.

2. A strengthening Dollar is possible but unlikely (different debate) but will not do as much damage as a
downturn. Nevertheless, as oil is priced in Dollars it will still mean that those that trade in £s will take a
double hit.

3. Profit taking will probably do the least damage of all

4. Major new supplies are possible but unlikely to come on stream within the next two years or more (I do
not know how long it takes from discovery to production), so that is unlikely to weigh on prices in the
short term.

On that basis I feel that the bullish case outweighs the bearish (just an opinion) and the odds are stacked against a substantial drop in prices.

 

[GotGold]

Lion, glad we share the same opinion.


Like all trades its too risky to just bang your money down in oil futures and hope for the best. We need to have a well thought out strategy which takes into account a worst case scenario.

Avoid 'COWBOY TRADES' ( I found this excellent term in Bo Yoders 'Mastering Futures Trading' which is a great book.) Cowboy trades are emotion driven trades which are closer to gambling than speculating or trading.

I have placed many 'cowboy' trades in my time. They are very destructive to your long term trading plans. Identify what they are and avoid them.
Sorry, to go of topic.

 

[Roberto]

Extremely interesting observations, gentlemen, thank you both. (I feel like a gatecrasher in the conversation but one who can learn from it!).

 

[GotGold]

Nobodys answered my original question. How low can oil go from here? I think not below $40

 

[LION63]

Boone Pickens was on Bloomberg a couple of weeks ago and said that he would not see $35 again in his lifetime (he could drop off next week and the rest of us could find oil at $34 the following day and he would be right). Boone Pickens is a very respected oil man and that has been the bedrock of his fortune and I would say he is right.

In the near future ie. the next 3 - 6 months, the fundamentals do not support a drop below $42. However, we know how markets can react and if the technicals were to move to the downside we might see traders opening short positions it would then depend on how aggressive they are. On a positive note, we are approaching the winter and demand will pick up.

Sorry I did not answer the original question earlier.

 

[JonnyT]

$1 or less.

What if TechCo accounce a fuel cell that uses water will be on the market in 6 months...

Not beyond the bounds of possibility.

JonnyT

 

[LION63]

That would send shock waves through the oil market but would be tempered by two main factors; (1) reliability and power and (2) scale of production from the factories. Then the markets would consider how long it would take to convert the main oil users to such technology.

JonnyT, since you have added something else to the equation, what effect do you think that might have on the major stockmarkets and oil related shares (users and sellers)?

 

[GotGold]

Added some small longs at the 4750 -4850 level.
This is a pull back.
Watch your MACD for a buy signal out of this low.

 

[LION63]

'When the last bull turns bearish.....' Have you noticed how all the former oil bulls now come out and say that the price got way ahead of itself? Everyone now says; we told you so; back below $40; oil in the tankers on the sea; no more strikes in Nigeria; Arafat is dead etc. Were these the reasons the price rose to $55? That is what they would have us believe but it was a case (and still is) of demand outstripping supplies.

As I have said in the past, I would not be too surprised to see it fall to $42 before surging to new highs in record speed, demand has not been reduced and new supplies have not come online.