I’m very bullish for oil now

First of all, we are again seeing a changing tone of the market right now. For the past 2 weeks, traders have been scared to death for owning stocks overnight and therefore they always sold hard before closing every day until yesterday. Yesterday was the first day for some time that investors were courageous enough to buy before closing, although still very nervous to only push S&P barely above the water line. But today, the tone has decisively changed. While most of the day stocks were often under the water, the last half an hour before closing saw an overwhelming buying interest coming in and S&P closed up at almost 0.8% higher. Together with all of the technical indicators pointing to an extreme oversold condition, this bullish behavior is certainly add more convincing evidence that a strong rebound is coming. I even think the Chinese stocks will rebound tonight strongly that I’d be willing to bet for. And I think the oil sector is poised for a rebound as well.

 

Talking about buying oil at the moment may make most of people sick! You see, oil has been down to the level not seen in the past 12 years. The situation is even worse than the financial crisis in 2008/2009. Turning on the TV or looking for online discussions about oil, the overwhelming opinion is that oil will go down towards $20/barrel.  I don’t know how low oil will go eventually and what is its final bottom. We are in an uncharted water that no one really knows how bad the situation will turn into. One thing I fully agree with all these pundits is that oil has a lot lower to go and is certainly not yet bottomed. But the thing different between me and the majority of the opinion is probably how oil will move in the near term. Or let’s put the question this way: what do I think about oil’s prices in the near term?  I bet we may likely see oil shooting up towards $40 before we see it down to $20 in the next few weeks. Why I’m so bullish about oil short-term? For one, it is a contrarian call. As my friends know, I often go against the herd opinion. As I often said, when all the people stand on one side of a boat, it will tip over. I think now is the time with extreme one side standing for oil that we can bet against. Then comes with the technical indicator. When oil is relentlessly testing lows after lows for the past days, its MACD is showing a massive positive divergence, which is often an early sign of a turning point. Last but not least, another powerful contrarian indicator: oil speculators’ extreme bearish sentiment as shown in the COT report. COT is  the “Commitment of Traders” report, in which it will report on a weekly basis what traders are betting almost on anything in the market. At the moment, the oil speculators (such as hedge funds and other traders) are overwhelmingly bearish on oil in the degree that has not been seen since 2013. This is a huge contrarian indicator as history has repeatedly demonstrated that when such speculators are sided on something, you can safely bet for the opposite direction of the stuff they are betting on. So when speculators are really depressed on oil at the moment, I think the turning point is around the corner. Of course I cannot pinpoint the exact timing point but I think it is very close to,  if not yet at the point. Either buying oil vis USO or vie the oil service ETF like XLE will likely profitable in the weeks ahead.