I’m not going to mince any words: My timing was off on oil and the euro. The recommended positions in both are hurting. But as the old saying goes, “It ain’t over till the fat lady sings.”
And so it will be with oil and the euro. Let’s start with oil. First, almost everyone seems to think oil is now headed to $10 or lower. That’s music to my ears, exactly the kind of negative sentiment you hear near MAJOR lows.
Second, almost everyone is now also saying Iran will flood the market with oil. But that’s been known for quite some time. Yes, Iran recently stated it would increase production more than it had originally stated, but that too is most likely already factored into the market.
Third, and most importantly are my models. I ran a new set of models on oil this past weekend testing 37 different cycles, billions of calculations, and then let the computer pick the two most likely future paths for the price of oil.
Simply look at this chart. It’s indisputable. Oil should bottom any minute and start a powerful rally.
What will drive the rally? Initially, big short positions taking profits. Then we’ll likely see a host of bullish fundamentals come down the pike, from declining inventories, to an upside demand surprise, to geopolitical risks.
My view: Though the recommended oil positions, UWTI and the April UCO call options, strike price $12 – are underwater – hold those positions. Not only can they easily come roaring back, they can still spin off some excellent profit potential.
Now, the euro: In short, the trend is seriously bearish for the euro, but of late, it’s done nothing but go sideways. Conversely, the dollar has gone nowhere but trade in a tight range.
Nevertheless, the dollar appears on the cusp of a new breakout, and conversely, the euro on a new breakdown. The February 19 2016 EUO call options, strike price $28, are nearly worthless. Yes, that stinks.
But it makes no sense getting out of them now. If the euro starts to slide as expected, I will seek to salvage more value, perhaps even a profit, which remains possible given that option has a month to go.
Therefore, I recommend holding all related euro positions.
Stock market: This week appears to be shaping up for a bounce for a day or two, then lower. There are open gains of as much as 66.96% on UVXY, as of Friday’s close. Hold.
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Gold and silver: Biding their time, but basing for an important rally, per the previous forecast charts I showed you, repeated below. Hold your positions in UGLD and USLV, as well as the mining ETF, GDX.
Best wishes, as always …
Larry
