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Oil Has Likely Bottomed

Oil has probably bottomed.

Here’s why:

On a weekly basis, we still have the positive divergence I have been talking about the last couple of months:
Oil WeeklyOn a Monthly basis, we now have a bullish hammer pattern. We could see some small pullbacks, and even a pullback towards the August lows, but the medium term trend for oil should be UP.

Oil Monthly

Gold Shares: Lows are Near

Here is an interesting article written by the Aden sisters.

As most of you know, many mining companies have fallen by over 90%. The HUI Gold Bugs index has fallen 83% since its 2011 peak in the second longest bear market in gold shares on record. It’s fallen twice as much as gold’s bear market loss of 43%.

But looking at the next two charts, both are saying the lows may already be in.

The bear market is not over until it’s over, but the gold shares to gold ratio on Chart 1, sure looks like a low is near.

Note the sharp spike down to record lows this month.

Its intensity looks similar to 1980 when it spiked down below the mid-channel line.

Interestingly, at that time gold was much stronger than gold shares during the best part of gold’s bull market at the blow off peak.

This time the spike is due to gold shares being extremely weaker than gold. It’s now at the bottom side of a 44 year downchannel and it’s formed a several decade downside wedge.

This big picture shows that gold shares started to become weaker than gold in 1996.

And it also clearly illustrates how cheap this market is today…

The worst four+ year bear market in gold shares started in 1996 and it ended in 2001. And now, today’s bear market is matching this record.

Comparing the two time-periods, you can see the similarities (see Chart 2). That is, today’s bear market decline since 2011 looks a lot like the terrible 1996 – 2001 gold share decline.

The craze then was the tech frenzy. Irrational exuberance went out the window and tech stocks soared, leaving gold shares in the dirt.

Most exciting now is to see how close today’s lows are to the worst bear market’s lows. This is saying we could well be near the lows in gold shares. For now, the HUI index would start to look good by staying above 120.

Source: 321gold.com

Interesting Times

Back in 2008 when the markets crashed, everything crashed along with them: Oil, Silver, Gold, the Euro,…

Yet this time around, that doesn’t seem to be the case:

The Dow Jones Index lost 5.82% this week alone.
The German DAX index lost 7.83% this week.
Oil lost 4.48%.
The Euro rose 2.62% (?!? Isn’t the dollar supposed to be a safe haven??)
Gold rose 4.20%.

Yet even after the rally this week, gold’s COT chart still looks very bullish, as Commercials increased their short position only slightly, from 24,458 contracts to 29,948 contracts.

Gold COT

This will be interesting for the weeks ahead. Stock markets appear to be in full panic mode, and investors seem to flock to gold this time around.

It will be very interesting to see the open on Sunday night/Monday morning.

If the markets go bananas, it could be that Gold GAPS up above the 50 weeks average, which is currently at 1192.90.

Gold W

That would indicate that gold has further to rally, all the way up to the 200 weeks moving average, which is currently at 1417.
This could be accomplished in a very short time if it happens.

If you missed the opportunity to buy a couple of weeks ago, but would still like to join the party, go for short dated options on GLD:

http://finance.yahoo.com/q/op?s=GLD&date=1442534400

For example, the GLD Sept 18th Call option on GLD with excercise price $125 has a bid at $0.09 and ask $0.10.

This means that you can buy 1 Call option for 100 x 0.10$ = 10$.

If GLD (currently trading at 111.13) trades below $125 by Sept 18th, the option will expire worthless.
However, for every $1 above $125, the option increases by $1. For example: GLD trades at $135 (implicating Gold around $1400).
The option is now worth $135-125=$10.

Since you bought the option for only $0.10, you have a 100x increase in price.
For every $100 you speculate in this option, you could make about $10 000 if Gold trades around $1400 by September 18th.

Is it likely? I don’t know.
Is it possible? Yes. But don’t look at the stock markets then. They will look HORRIBLE.

Just know that options are risky. If the market goes against you, your whole “investment” will be lost.

But I’d rather buy this option than a lottery ticket.

Oil Stocks – A Long Term Value Play

We are having a severe oil crisis right now, no doubt about it. Prices are plunging, and corporations are laying off hundreds of thousands of people.

However, I believe that the oil companies will get out of this crisis stronger than ever before.

They reduce costs substantially, and can now build projects for a fraction of the pre-crisis price level. Once oil prices rebound, they soak in loads of money.

Back in January 1984, Oil was trading at $30. Today it’s trading at $41.

Oil

Even though there’s a risk that Oil will go down even more, I am starting to see good value in the major Oil stocks.

Have a look at the long term trend of Exxon Mobil (NYSE: XOM) for example:

XOM

Or how about Chevron (NYSE: CVX)?

CVX

Or how about ConocoPhillips (NYSE: COP)?

COP

All of them are now trading well below their long term uptrend average.

When will they return to their mean? I don’t know, but when they do, their prices have increased at least 50%. I think that’s possible in the next 5 years, or even sooner. As you can see in the ConocoPhillips chart, I have highlighted some periods with red and green circles. Red circles indicate that price is too far above the trend line. Green circles indicate that price is too far below the trend line.

For all these 3 stocks, price is now in a “green zone”, where price is far below the long term trend line.

Patience will be rewarded for those investing in oil stocks now.

Norwegian Krone hinting at Oil Bottom?

The Norwegian Kroner is currently trading at the lowest level against the USD since 2002.

Below is the chart of USD/NOK.

On a weekly basis, it looks like we are getting Negative divergence here, as price sets a higher high, while the MACD sets a lower high and looks ready to roll over. Of course it can go on for some weeks, but that will probably not void the negatice divergence.

This is another reason why the oil bottom may be getting closer and closer (Oil is trading at $40.66 right now).

NOK

Oil – Update

On July 24th, I wrote the following:

Oil looks very weak and looks like it will revisit the lows (sub $45) over the next couple of days.

Oil DAnd yes indeed, Oil did go down, and is currently at $43.30, just a couple of cents above the March lows.

Now, where do we go from here?

On a Weekly basis, it looks likely that Oil will make a positive divergence, as I wrote on July 11th 2015. A rally thus becomes a distinct possibility.

Oil Weekly

However, on a Monthly basis, the picture looks very weak. In fact, if Oil prices do not bounce soon (over the next couple of weeks), it could drop all the way to the lower bollinger band and below ($25-$30):

Oil Monthly

 

 

Gold Miners: Time To Get Greedy?

I read an interesting article today by Jesse Felder.

Gold and the mining stocks have been absolutely crushed lately. The plunge in price after a nearly four-year bear market has investors panicking.

It’s very easy to say, “be greedy when others are fearful,” but it’s another thing entirely to actually do it. Here are a couple of reasons why it might pay off in the miners right now.

They say the best time to buy is when there’s “blood in the streets.” At -22%, the 5-year average annual return for the Philadelphia Gold/Silver index has never been so poor, Short Side of Long reports. This is exactly what “blood in the streets” looks like:

Gold-Miners-Compound-Return

Chart via ShortSideofLong.com

This prolonged pain has created an incredible degree of despair in these markets right now. Everyone hates gold today. Traders hate it. Speculators hate it. The media hates it.

But only when something becomes so widely out of favor does an investor get the opportunity to buy it at such a wide discount. The more out of favor it is the greater the discount. The greater the discount, the greater the prospective return.

Meb Faber recently showed us the terrific returns to be had by buying an asset class after a prolonged decline: “You doubled your returns in the year following three down years for both country stock markets and asset classes.”

image

Graphic via MebFaber.com

Read more HERE