As everyone and their neighbor races for their market share of this crude oil move, the glut could grow.
Fundamentally, crude oil supplies here in the United States are at the highest in 80 years. The highest on record or really the highest ever in my opinion. That's right, with the Energy Information Agency (EIA) reporting on Wednesday this past week that supplies increased 8.9 million barrels from the previous week, the glut settled at a whopping 406.7 million barrels. So on the supply side of things could it be more bearish?
This is primarily to the best new I have heard in years. Massive increases in production here in the United States and Canada. This means our dependence on oil from the Middle East could be dwindling. All due to a vertical hydraulic fracturing drilling method sometimes called fracking. This is a technique they are using that involves pressurized water, sand and chemicals to extract shale oil. It's working like a charm and the proof is in the record supplies.
I have added my favorite technical indicators to the crude chart below. They are the 9- (red line), 20- (green line) and the 50- (blue line) period simple moving averages (SMA). I have also added Bollinger Bands or BB's (the light blue shaded area) and Candlesticks (the red and green bars). On the daily chart below each bar or Candlestick represents one day of trading. These few technical indicators tell me 6-12 different characteristics about the market at a quick glance. I have them saved on my charts in MARKETHEAD so they can populate any chart, any market, and any time frame at the click of a mouse.
Also from a technical standpoint this is in what I have coined a "SUPER-TREND" down on the chart below. In order to achieve this what we need to have happen first is a cross of the 9-period SMA (red line) down and under the 20 period SMA (green line) as both indicators point lower on a fairly sharp angle while the market itself trades below the 9. Now we have the 9-period SMA as our first area of resistance, then the 20 and on the daily chart the 50.
On the daily chart below, I want to point out that what I like to pay attention to on the Bollinger Bands is not the light blue shaded area itself, but where the light blue area starts at the bottom and then where it ends at the top. So I have five out of five of my indicators pointing down and they are the 50-day, the 20-day, the 9-day, the bottom line of the BB's, and the top line of the BB's. That is extremely bearish to me especially when the market is trading not only below the 9-day SMA (red line), but it closed right up on the resistance of on Jan. 30. This could also indicate a very healthy bear market especially if we go on to make new lows from here. If not, then keep an eye out for the next area of resistance, the 20-day SMA (green line).
I figured this out by pulling up and studying a daily and weekly chart with my indicators by the click of a mouse which can be found here, which is a web application that we have developed for our clients called MARKETHEAD where I get about 80%-85% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 15 years.
Some good plays I think could be to buy puts or bear put spreads with a call for a hedge or "insurance" in case the trend changes to down dramatically. I would recommend this in a 3 to 1 ratio as always. Puts or bear put spreads have a limited risk and unlimited profit potential to zero for the price of the underlying future.
Another potential play could be to sell deep out of the money calls to collect premium. However this strategy requires a well-funded account and high risk tolerance in my opinion.
Click here for 25 option strategies.