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Stocks to Watch: US Crude Oil Fund $USO (/CL)


Background:


As I have usually written in this blog, I do not trade with futures, but I follow them daily because they are the basis of all my analysis. This time I will review the protagonist of the last two months, the Crude Oil /CL, which can be traded through the popular etf USO, or at triple speed through UCO, for riskiest traders.


Fundamentals:


The fall of oil in October and November has been the deepest that has suffered since the remembered pullback of 2014. Of its annual maximum, at the beginning of October, of almost $ 77, today oscillates in levels of $ 50, that is to say, a descent of almost 35%, something very uncommon. It's because we are living a new era in the leadership of the crude. Today the price is decided by a trio of unpredictable governors like Trump, Putin, and Bin Salman. The oil production of their countries, together, represent almost 40% of the world supply, surpassing the once powerful OPEC, and making its decisions almost unnoticed. Even less is the weight of non-OPEC, all already practically aligned with Russia and Arabia, the true leaders of OPEC.

This trio establishes the political context, leaving operational decisions in the hands of ministers and officials. And obviously each country has different interests and visions:

- Bin Salman wants a high price in crude oil, at the expense of reducing its production, to boost its agenda to modernize its country. He still supports the North American pressure in the opposite direction.

- Trump wants a low price, so as not to boost inflation or the dollar in his country, as we discussed earlier in this blog, handling the situation both in the external and internal front. Pressing Iran, its natural enemy, with sanctions and exemptions to its consuming countries, and on the other hand directly pressing Arabia, its ally, to increase its production. Trump' support for Riad in the Khashoggi theme is not casual. And in the internal scope, Trump relies on the boom and high production of shale gas, despite its controversial extraction by fracking, to keep in line the traditional private oil companies.

- Putin and Russia, as always, put themselves in expectation of what is happening to accommodate themselves. As a producer country he wants for Russia high prices, and as a popular governor in your country, low prices. It maintains its strong alliance with the Arabs since 2017 by defining the production quotas for its own interests and also with the idea of annoying the USA.



This is presented only for information purposes: the map of OPEC member countries, increasingly less relevant in the decisions of the price of crude oil.





Technicals:


Little to add here. In the face of tremendous collapse, today all indicators, without exception, mark bearish signals and extreme oversold, so what is indicated is to try to deduce when this trend could end, and risk a "buy the dip" trade for profits. For this, my favorite indicators are the supports/resistances and the popular Fibonacci Retracements.

His two-year Fibonacci chart shows the price struggling with the 50% retracement level, which almost matches the psychological and key support of $50. So, we are in crucial days for next move of /CL price.


If after the G20 the crude oil price does not overcome the support of $ 50 and the Fibonacci 50%, their following support would be 61.8% of the Fibonacci and one unclear in $ 43, already quite dangerous levels.


Idea:


In the short term, there may be a rebound at the $50 level mentioned. It would be the most sense because the pullback already deserves it. It will be able to oscillate some days around that level: the strength and momentum of the rebound will depend exclusively on what can be decided at the end of this month in Buenos Aires when the Trump-Putin-Bin Salman trio meet for the G20 forum.

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Alexander Elder reviews the current Market


By kind permission of Elder.com, the website of the recognized trader, Alexander Elder, I reproduce for you, literally, its article "Books and Trades #252: Current market, Thanksgiving Special" of November 21st, about the actual behavior of the market and his outlook for the next months.


November 21, 2018


Dear Trader,

I haven’t written to you in a while, but felt compelled to do it today, in view of the current market situation.

There is a definite sound and smell of panic.  Go to any news website, and their waves of fear hit you in the face.  Don’t you think that if those writers knew how to trade, they would be making money instead of spreading emotional waves. Here’s what I recognize in the current markets:

Click here to enlarge this chart (only when you’re online)

  • Bull markets are defined by the pattern of higher highs and higher lows
This pattern is intact on this weekly chart of the S&P as well as the Dow (not shown).

  • The bottoms of severe corrections are usually retested on lower volume.
The latest decline was just such a correction. The Nasdaq (not shown) had actually nicked its October low before recoiling and rallying.  This is very similar to what happened in February 2016, when only the Dow among major indexes had nicked its previous low.

  • The second bottom of a correction is almost always confirmed by multiple divergences.
The inset in the center of the chart shows a bullish divergence of the New High – New Low Index.  The dark inset on the right shows the weakening of the Fear Index.

This bull market is definitely getting older (aren’t we all) and more ragged.  At some point it will top out, creating great shorting opportunities, but that time is very unlikely to be now.

To see what goes on day to day, I recommend joining SpikeTrade.com, where I post several times each week.  Take a Trial to see how much you can learn.  Another invitation: join my private webinars at elder.com to see live market analysis and receive answers to your questions.

Best wishes,
A Elder





November 28, 2018  (Update)


Dear Trader,

Here’s the weekly chart of the S&P I sent you last week, followed by today’s daily chart (drawn around 2pm).

Click here to enlarge this chart (only when you’re online)


The headline of my post in SpikeTrade on Monday was “Had the corrective move been completed?”  I presented evidence for both sides, answered affirmatively, and shared my long purchases. The ensuing rally went into high gear today, crossing above the value zone, gathering steam.

Don’t you wish you were receiving daily SpikeTrade posts.

The reasons for this reminder: a) in tonight’s webinar we’ll focus on stock selection and b) our Thanksgiving special will end on Friday.

I will aim to write to you again before the end of the year,

Best wishes,

A Elder

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Watchlist Update: Market Pulse, Sectors, AAPL, NVDA


Market Pulse.


The stock market is threatening to finally enter a bearish stage, judging by the movement of SPX that, technically, fell again under the SMA200 and struggles to overcome it. We mentioned that its monthly chart closing under the SMA10 was a bad sign, and now the usual Christmas mini-rally is in danger of not being made. Some notes:
- The Apple AAPL 5% correction is pulling down the Nasdaq and the entire technology sector XLK, and this time seems it will continue in the short term because there are some fundamental aspects.
- The Trade War makes Wall Street move according to its rumors, news and subsequent denials. Now, it seems that Trump and Xi could meet on November 30 at the G20 Summit.
- The VIX volatility reached the psychological value of 20, after many indecisive sessions.
- The dollar remains very strong against all its peers, but today's inflation flat data can generate more pressure to the FED about a Rate Hike in December. 
- On the other hand, the apparent tranquility of the 10-year T-Bond yield TNX at the 3.15% level and the collapse in the price of oil /CL (12th. straight sessions of declines, and today falling 6%), can help the market in the mid-term. 
Let's see some technical charts and ideas for stocks of my November Watchlist.


Comparison between sectors


This comparison chart shows the performance of the nine main sectors during 2018. Shadow in blue sky is the SPX, the benchmark. As we see, since early October, the default three defensive sectors (Staples $XLP, Health $XLV and Utilities $XLU) still leading the market, signing a clear downtrend, confirm by the Sector Rotation Model above, in red.



Apple Inc. AAPL, $192.595


Apple today at a crucial moment when trying to bounce in its SMA200 after 6 months over this. A "buy the dip" trade or wait for the rebound: that's the dilemma. Meanwhile, the bear signals continue strong in the MACD, but now an excessive overbought in its Stochastic can mean a rebound. Good time to trade options or spreads as implied volatility is below historical data. AAPL, with their fundamental problems as the sale of their iphones and excessive buybacks, is likely a short in the  short-term.


Nvdia Corp. NVDA, $203.06


NVDA is one of my favorite stock, only for speculate, with a day-trade. Always its good volume and volatility above 60%, guarantees good daily movements, but requires constant vigilance. This week several entry points (that usually happens in the first half-hour of the session) were given using the ADX-Ichimoku strategy reviewed in a previous post. Using levels of support or resistance from the previous day and verifying the required price and chart conditions (breakout, above/below the cloud, ADX>20 and Tenkan exit), fast profits can be obtained. The ADX-Ichimoku, as all, not infallible, but good strategy in days of choppy markets. Remember in Thrusday, Nvdia reports Q3 earnings, that likely will define its route in the mid-term.

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Trader Notes: A Second Line of Technical Indicators


Yes ! There are many reliable indicators as MACD and RSI !


The oscillators MACD and RSI, together with the moving averages, form the standard trifecta of a trader for the technical analysis. Because of its popularity, efficiency and simplicity, everyone, without exception, knows and uses them. So I'm not going to detail its benefits, only give some additional notes about them.

The MACD (Moving Average Convergence/Divergence) combines trend with momentum (or acceleration) of the price, and its signals are simple, we know: bull and bear crossovers, line plot above zero means trend up, plot below zero means trend down, rising histogram means buyers increasing, falling histogram means sellers increasing. 
My personal contribution: take care of the divergence of MACD-histogram with price in daily charts, because they had frequent errors if it is not used correctly. For this reason, the recognized trader Alexander Elder recommends using the EMA13 line as a confirmatory signal, verifying that its slope points in the direction of the divergence, bull or bear. In my trading, sometimes I add a second confirmation with the same MACD but in the weekly chart: verify if a MACD crossover matched with the divergence of the daily chart.

The RSI (Relative Strength Index) is also an oscillator but it gives different information than the MACD. It qualifies the situation of the stock as overbought or oversold according to the value of the indicator on a scale of 1-100. Its crossover at levels 30 and 70 are used by traders as a probable reversal. You can also used its divergence with price (I do not usually do it), but never as an indicator of the trend of a stock.

Technical indicators there are hundreds, to taste of each trader and his trading style. In my case, after having tried many of them during my years of trading, I manage a "second line" of technical indicators, which serve only as a complement to use in conjunction with the main ones, only to reinforce any bull or bear signal. Usually a good technical analysis can be done with 2 or 3 indicators, its enough. Remember, there are just indicators, not a strategy. There's no infallible or magic indicator: all of them give sometimes false signals. Select and use your favorites indicators in a multiple timeframe (making the strategic decision on the weekly chart and the tactical choices on the daily chart), in conjunction with fundamental analysis for a best trade.


Is necessary read the MACD with a confirmatory study as EMA13 (black line). This avoid false divergence signals as happen this year in Novavax chart during early July.


TTM Squeeze: a mix between Bohlinger and Keltner


Previously I should refer to two other popular indicators, which are quite similar, but give different readings. Both plot lines as an envelope around price, based on stock volatility. The Keltner Channels use a smooth exponential moving average as mid-line and the Average True Range as offset, while the Bohlinger Bands uses a simple moving average and offset with the standard deviation, which varies proportionally with the volatility. Both are useful as trend-following indicators, and its a good idea use them with a momentum oscillator as Stochastic or RSI, and the ADX to identify trading ranges.

In summary, the upper and lower bands of the Bohlinger represents overbought and oversold levels. The BB works best in ranging than in trending behavior of a stock. Take note that touch a band isn't necessary a sign of reversal, but probably a low-risk entry point. Keltner had different readings depending on stock behavior: if it's trending, a close above the upper is a bullish signal, while below the band is considered a bearish one. If it's ranging, envelope lines can be interpreted as overbought and oversold levels.

An indicator relates both: the John Carter's TTM Squeeze. The idea is very logical: when volatility increases, the Bohlinger Bands are widening and enveloping the Keltner Channel, while when the market is consolidating (period of indecision) the Bohlinger are inside the Keltner and the market is squeezing, preparing for a breakout to come.


As expected, different indicators give different entry-exit points. Compare several indicators, and define your risk-reward before your trade. The location of the stop loss is key to this.





Carter designed the use of dots across the zero line: red dots indicate that squeeze is on, so a consolidation breakout is coming. Green dots represent squeeze off, so market is trending. The trend momentum oscillator histogram is show by colors: in my configuration I use green for trend up and grey when its decreasing, and red when trend is down and grey when its decreasing. 

When the indicator is on (green) and the momentum oscillator is also green, is consider a buy signal for a trend-trader. When the indicator is on (green) and the histogram is red, is considered a sell signal. Both signals are supposed to be correct until two grey bars in a row appear. Try this interesting indicator in your favorite trading platform.



On Balance Volume (OBV), a different one


Less popular than those described above, the OBV is a trend indicator that measures the pressures of buying and selling, adding/subtracting volume on up/down days. Is simply a running total of up and down volume: when the security closes higher than the previous close, all of the day's volume is considered up-volume, and when close lower than the previous day, all of the day's volume is considered down-volume

As it uses volume in its calculations, and volume, in theory, precedes price, the OBV have truly good advantages versus others:
- A rising OBV reflects positive volume that can lead to higher prices. 
- As rising volume confirms an up or downtrend, if price movement precedes OBV, then it is consider a "non-confirm" movement.
- So, OBV breakouts normally precede price breakouts
An OBV ranging is an undecided trend: better hold until the trend changes.
- OBV are also useful for anticipate trend reversals, using its bullish/bearish divergences with price.
- Be careful when volume spikes: it usually throw off the indicator at that point.

OBV divergences are infrequently but powerful signals. Always use in conjunction with another indicators, as an oscillator. This ADP chart show three of OBV features.
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Weekly Outlook for the SP500


SP500: Some keys for the week.


In the fundamental aspects, there are important events this week that will determine the path of the SPX, highlighting two: one, the US Midterm elections, which will surely end with the Senate in the hands of the Republicans, and the Congress probably with the Democrats. Any other result would give the market strong volatility. The other, on Thursday there will be the FED Announcement, where, although no Rate Hike is expected, traders' eyes are in the report with the perspectives of the Central Bank for 2019. In the background, like every week since April, the catalyst of always: the news of the advances (or setbacks) in the Trade War with China. Any news here moves exaggeratedly the SPX and the entire market. Thus, last Friday, Trump announced that he was close to an agreement with China (SPX immediately soaring 1%), and then Larry Kudlow expressed prudence even on the subject (SPX abrupt sinking -1%). All in few hours of session.


To take into account: the period from November to January is historically the most bull on Wall Street.



I suggest exit from all long-term positions



Within the technical aspect, despite its good last week, finally the SPX index closed October below its 10-month simple moving average, the SMA10. A worrisome signal as, it was already commented in this previous post, is an indicator used by "heavy" banks and financiers to make long-term decisions. This month of November, it is advisable to follow the market with caution, ideally, as I said, by exiting long-term positions. In my case, I already did it, and I will only operate with very short-term trades with tight stop losses.


Its daily chart sees a recovery towards its SMA200, in a new attempt to overcome it and give the green light to the traditional Christmas mini-rally. It has already been commented many times that the period from November to January is, historically, the most bull on Wall Street, and if the SMA200 is not overcome, it is very difficult to wait for this year to happen. You can also see an interesting bull crossover in the MACD but with the plot even in negative territory.


SPX is heading towards its SMA200 in a new attempt to overcome it and start the mini Christmas rally.




10-year US T-Bonds: follow $TNX chart


The TNX chart will be the most important that I will follow this week. Remember that the recent "Red October" began due to its fierce increase, reaching levels of 3.25% that it had not since 2013. 

Last week it began another solid uptrend, and we already know how sensitive Wall Street is to this rises, as well as to inflation, both causing to cool a healthy economy. Already in this previous post I commented that finished the sell-off this yield could continue its rise to the level 3.5% to give more steep to the currently very flat yield curve, not consistent with a growing economy like the North American.

TNX approaching again at 3.25%, the level that burst Red October. Go with caution if it get over this week. On my radar.


Crude Oil, /CL: pullback ends?


In an environment where there are positive and negative aspects for the market, the Crude Oil will take importance these weeks like the faithful of the balance, that probably mark the way the SPX will follow.

The recent and strong pullback of the price of Crude Oil suits very well for the market, since it is a factor that helps the inflation index not increase excessively. Throughout the year /CL price has been rising to over $75 level and although it was expected to increase further with the problems of Iran, finally the necessary technical correction has brought its price to $63, below its important SMA200. The interesting thing is that this pullback could be ending soon because the price is completely oversold and can turn around.


Crude Oil in October below Ichimoku Cloud and last week below its key SMA200, breaking $64 level. Many bearish signals. In favor: hugely oversold.
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My Stock Watchlist for November- December 2018



On my Thinkorswim trading platform, I manage several watchlists, differentiating them according to the instruments it contains. There are stocks, futures, ETFs, sectors, and indices.

The ETFs watchlists usually keep the same symbols in time, having sectors, countries, commodities, both at 1X normal speed and 3X triple speed. Indicessectors, and futures are also fixed, covering the main index and commodities in Wall Street and major foreign exchanges, the usual managed by all traders.

Those that change permanently (usually weekly) are the symbols of the stock watchlists.
I divided them into two groups for follow-up: Main, which I follow on a daily basis, and Active, important stocks to follow due to news topics, popularity, unusual volume in shares or options, huge changes in price or volatility. Over time, appears a new, disappear other, some ascend to Main, or vice versa, according to the importance they are acquiring, in my opinion.

That a certain stock is in these lists does NOT mean any BUY or SELL recommendation. My suggestions and ideas regarding these stocks, in which I'm longshort or neutral, I do in this blog through the "Watchlist Update" or "Stocks to Watchposts. And mainly through Twitter or StockTwits, which are much more friendly and dynamic platforms for these cases. I enjoy getting feedback from traders there, or in my GMail. Please feel free to contact me.

Finally, review my previous post "Spirit of this Blog", a kind of declaration of principles of it.


November Stock Watchlist:




Images taken in November 3th, 11:48 EST
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