Commodity markets are moving faster these days and we’ve isolated a short-term buying opportunity in the crude oil market.
We think much of the concern about oversupply is priced into crude already at a recent low of just $42 a barrel. This includes the surge in U.S. shale oil production, cumbersome U.S. oil inventories and 23 consecutive weekly increases in U.S. drilling rig counts.
Meanwhile, U.S. demand is holding firm, highlighted by last week’s implied gasoline demand reading of 9.8 million barrels per day.
That’s within striking distance of a new record high and comes just ahead of the peak U.S. summer driving season.
Additionally, expectations for this week’s EIA oil inventory report are for a drawdown in the range of 2.2 million barrels. This would follow the previous two weekly declines totaling 3.3 million barrels.
But there are more reasons to be bullish…
Our E-Wave cycle forecast calls for a bottom in crude oil in the coming weeks. Take a look:
As you can see from the E-Wave cycle chart, crude oil prices may have already bottomed and are set to rally much higher into late August.
And given the severely oversold technical condition in the market, we think further downside is limited, while the upside potential is lucrative.
Here’s additional bullish evidence in the pitchfork analysis of Crude Oil below, which shows the market clearly turning higher just above critical downtrend channel support. See chart:
You can see that Crude Oil is quickly closing in on the lower trend channel boundary. The next move – similar to what occurred in May – is likely to be a rally back to the upper channel boundary of the pitchfork.
While it’s possible that oil prices may dance around in the lower $40’s, and perhaps make a marginal new low for the decline, a tradeable rally is right around the corner.
And to position for a turn higher and potential for a bottoming process, we recommend initiating a small position to start in the United States Oil Fund, LP (USO).
Here’s what we recommend:
Using 2.5% of the funds you have allocated to this service, buy United States Oil Fund, LP, symbol USO, at the market, to open. Place a good-till-canceled protective sell-stop at $7.89.
Get this order in to your broker right away. Hold all other positions and stay tuned for new trading alerts and updates coming your way very soon.
Good investing,
Mike and David
