The Big Accumulation Area In Oil

For a few years I was bearish on oil, and did several posts about this which are all archived. So let’s take a look back, and then see how this all fits in to where we are now.

From January 2015, “Oil is not remotely close in time nor in price to any major bottom.. I will emphatically state that oil has much further to fall – $35/barrel minimum. And this will drag on for years..There is almost 0% chance of a huge rally in oil any time soon. We have to have a massive selling climax FIRST and that is no where close. A $35 minimum low for oil and a shot at $20 later on and the ramifications from this will drag on for many years.”

From September 2015: “..my long term projection for oil was $35. Oil got down to $38 and we’ve had a good rally, but I still expect to see oil below $35 before a high probability of a major low for oil and commodities in general – likely later next year.”

From December 2015 and January 2016, “Quickly on oil, my long held belief remains we will see sub $35 oil before a major low will begin forming – and January – regarding oil, when everyone was bullish with $100/barrel, I told the listeners that oil would likely fall below $35 before a major low began forming. And amazingly enough, that’s what has happened – with oil hitting $34.50, accompanied by a bullish technical situation. At the same time, the analysts who were bullish at $100 are now looking for $20 or even $5 per barrel. So oil is beginning a bottoming process. Also, to disagree with the consensus out there regarding deflation. I have been waiting patiently to go against the consensus about deflation and that time is almost here. Five years ago, almost no one saw the deflationary wave about to hit, now almost everyone sees no end to the deflation. 2016 is the year for the bottom in both inflation and commodities, likely by March, especially agriculture.”

Well it’s been “years”, coming, up on three, since that January 2015 post, and oil is closing in on a different market. Oil eventually hit its intraday “spring” bottom at $26 on 2/11/16. There were 2 other springs along the way, in March 2015 and August 2015. But like in gold on its way from the initial preliminary support in April 2013, to the selling climax lows in December 2015, those areas (marked on the oil chart) are called preliminary areas for a reason. Lower lows are still expected, even while the preliminary supports are actually warning signs of the ending of the downtrend. (This “phenomena” is on any time frame.) What I was getting at in those posts, which were written for a general radio audience, was a time frame into 2016 plus a break below the December 2008 lows, with the expectation of then a major selling climax and retesting. The whole thing in February 2016 was a terminal shakeout, a very bullish technical situation, like the stock market in March 2009 or the miners in January 2016.

So to repeat, oil is in a major accumulation area, this would/will take “years” and all of the technical setups and tools are “confirming” the process of accumulation – the preliminary areas (arrows), the selling climax at curve #3, the whole accumulation area with the big curve, and the smaller reaccumulation with the other curve. All the backups in an accumulation area are reaccumulation zones (weak hands to strong hands). And like I have relentlessly stated about gold, and with tons of charts of stocks and markets, there are 2 parts to accumulation areas, the downside and the upside of the whole area. Accumulation is a process, intertwined with numerous technical events. It’s truly baffling how few people truly believe in the immense power of accumulation, but better for us right? Let others ignore it. Currently there are quite a few weak hand longs in oil, and they’ve been pretty persistent all year, as I’ve discussed several times.

Agriculture has been a big laggard, and my position in RJA mainly from the Spring 2016 has gone nowhere. Agriculture is the cheapest major asset group around. The other commodities have had stellar rallies, energy and base metals. Commodities are in a secular bull market, and there are hordes of people who do not believe in it.  Maybe the people believing in an oil “crash” to $10 are all correct and I’m clueless. But I do this with my own money, and commodities are very bullish big-picture, the selloffs are for accumulating. Since May, we’ve been saying the selloffs in the small energy producers are for accumulating. Also we began liking the majors in August, but not nearly as much as the smaller shares. This has been discussed here several times, but  when the junk bond bear market really kicks in, the frackers and small energy stocks will see another great opportunity. Many of the quality ones have likely already bottomed. The previous comments from January about the frackers, etc. are below:

“….my outlook remains that we will see a secondary test of the $26 secular low, but at a much higher low. Crude oil is in a major accumulation area, but this bottoming process will take quite awhile. Energy prices in general are very bullish long term, it’s just that crude itself has alot of competition now and alot of technology – tho increasing high-yield interest rates will be helpful to knock out some of the weaker fracking companies. Oil production is very capital intensive – the fracker’s supply growth needs both high enough prices and low interest rates. It’s not just prices. And this whole green energy hysteria/government edict/carbon taxes (Trump notwithstanding) is a tough barrier for basically the internal combustion engine and the use of crude oil. But this is looking way down the road, and in the meantime there are potentially bullish geopolitical factors. A selloff in oil and a re-test would be very helpful to strengthen the market. There is a very large speculative long position in crude oil futures currently, and a break of support, like $49.50, will start to trigger sell stops.”