Island Reversal forming on the OIH

T

thehangingman

http://stockcharts.com/h-sc/ui?s=oih&p=D&b=9&g=0&id=p64940932772

This is my gut speaking and what I believe is happening right now.

I dont believe the selloff was due to the weather. Is everyone going to stop using oil because of some warm weather? Is OPEC going to simply stand back, watch and go ho-hum?

I will now tell you what I believe is happening. In late December, the hedge funds bought a lot of contracts. Look at the WTIC spot chart on stockcharts.com. You can see the contracts gapping up. That was the hedge funds taking bets that the historical trend of oil going up in January would be real. After all, the last few inventory reports have been very bullish and shown good drawdowns.

Many hedge funds were not only panic selling those contracts today, but shorting it as well. What happens after there is severe shorting, there is covering. I believe that there is an Island Reversal coming.

When there is an event, such as the huge oil price drop, no one at a trading desk has time to figure it out or to ask questions. They panic sell and then there are those who short.

One of the stocks I am looking at is HLX and its sister DVR. HLX is at the bottom of its range on the chart.

Im going out on a limb with this risky call. The downturn is a temporary event.
 
I think you are right. All the funds came back to work after the new year and hit sell button all at once. Oil i think will bounce back over next 2 weeks. Natural Gas however seems ruined for 2007. The resulting under investment will cause a new Bull market to start in Sept 2007 which will take Natural Gas toward $20 over the next few years if there are 2 cold winters in a row.
 
Quote from silk:

I think you are right. All the funds came back to work after the new year and hit sell button all at once. Oil i think will bounce back over next 2 weeks. Natural Gas however seems ruined for 2007. The resulting under investment will cause a new Bull market to start in Sept 2007 which will take Natural Gas toward $20 over the next few years if there are 2 cold winters in a row.
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agreed. thats the beauty of the fact supply storage is limited. producers will be forced to shut in production and sell cheap gas in the short term, assuming storage fills to the brim.

but come a cold season and an hot summer to the opposite extreme, and we have lift off.
 
If oil falls below 54 dollars per barrel, the oil bull market will be over and then the bear market begins and my analysis will fall into the wastebasket...

Right now the front month is staring across the line at 54 dollars at 55.44.

OPEC needs to convene an emergency meeting. If they are looking at the same charts as I, then they will do so.
 
Quote from thehangingman:

http://stockcharts.com/h-sc/ui?s=oih&p=D&b=9&g=0&id=p64940932772

This is my gut speaking and what I believe is happening right now.

I dont believe the selloff was due to the weather. Is everyone going to stop using oil because of some warm weather? Is OPEC going to simply stand back, watch and go ho-hum?
More...

A sell-off of oil/energy/services this broad has historically been a very good time to buy. If there is not a moderate bounce off these levels, it would be unusual.

There are too many producer/players with interest in keeping a floor under the price of oil. And recent experience has shown that there is no penalty, certainly from the U.S., in maintaining prices in the 60s.
 
Quote from lindq:

A sell-off of oil/energy/services this broad has historically been a very good time to buy. If there is not a moderate bounce off these levels, it would be unusual.
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But you can get hurt very badly in OIH if your timing is off even by a day or two.
 
Quote from a529612:

But you can get hurt very badly in OIH if your timing is off even by a day or two.
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Cannot the same be said for any trade? Who among us would not like to go back in time and move our entries by a day or two?
 
Quote from thehangingman:

http://stockcharts.com/h-sc/ui?s=oih&p=D&b=9&g=0&id=p64940932772

I will now tell you what I believe is happening. In late December, the hedge funds bought a lot of contracts.
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This is not new information. I already heard this news on my squak boxs this afternoon. They said a huge hedge fund has a margin call that needs to be meet in the next 24hrs.

I do think there will be a nice bounce in the near future, may be tomorrow. I'll be looking out for it.
 
Quote from lindq:

Cannot the same be said for any trade? Who among us would not like to go back in time and move our entries by a day or two?
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Not really. OIH can be very unforgiving- it may leave you speechless.
 
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