Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Markets Failing to Give Another AI Mega-trend Buying Opportunity - 6th Jun 20
Is the Stock Bulls' Cup Half-Full or Half-Empty? - 6th Jun 20
Is America Headed for a Post-Apocalyptic Currency Collapse? - 6th Jun 20
Potential Highs and Lows For Gold In 2020 - 5th Jun 20
Tying Gold Miners and USD Signals for What Comes Next - 5th Jun 20
Rigged Markets - Central Bank Hypnosis - 5th Jun 20
Gold’s role in the Greater Depression of 2020 - 5th Jun 20
UK Coronavirus Catastrophe Trend Analysis Video - 5th Jun 20
Why Land Rover Discovery Sport SAT NAV is Crap, Use Google Maps Instead - 5th Jun 20
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Crude Oil Price Epic Blowout

Commodities / Crude Oil Dec 16, 2014 - 12:11 PM GMT

By: Bob_Loukas

Commodities

The FED’s easy money has encouraged rampant energy speculation and over-investment, resulting in more than $500 billion in new loans and investments in just the past 4 years. And so long as Crude prices stayed comfortably above $90, investments made money and everyone was happy. But once energy prices started falling, the decline quickly became a negative loop-back effect because the very high levels of leverage could not tolerate the move. Whenever asset prices fall in a highly levered market, there is often a sudden lack of liquidity to absorb the speculators’ need to unwind leverage, leading to desperation and fire sales. In the case of energy, the sudden disappearance of “investors” highlights just how speculative the underlying market had become.


It’s not exactly a Black Swan event, since Crude and other assets occasionally move with incredible ferocity. But to a highly levered and speculative population who chose to ignore the risks as being far too improbable to worry about, it’s a situation where debt cannot be offloaded at any reasonable price. At $55 bbl Crude prices, much of the new debt simply does not work, meaning that significant energy company junk bond defaults will occur. Although this is obviously bad for the energy complex, it also has very real implications for broader systemic risk.

The only saving grace may be that it appears that Crude has entered the final, vertical decline of the crash. A bottom in the $50 range is in no way guaranteed, but it is likely that the low will come in the near future. Notice on the below chart that the current move down started from a June top. Since then, we’ve had no better than a Day 3 Cycle top, showing just how extremely Left Translated recent Cycles have been. The chart also shows how relentless the downward move has been, and the 3 distinct channels it has taken. Within each channel, the declines have taken on a steeper, more vertical aspect, to the point that Crude prices are now near free-fall.

When a market enters into crash mode, there is no way to know where it will bottom. Unlike Crude, the energy producers have, to date, held up relatively well. And recently, they put in a very convincing counter-trend rally at the same time Crude appeared to be finding a bottom. But unless Crude does find a bottom, and quickly, the energy producers will, I believe, be punished with extreme prejudice, as we’ve yet to see “crash-like” selling in many of the names.

As is clear on the below chart, Crude was already deep into the timing band for a Low when energy producers rallied, fooling everyone into believing that a new Cycle was already underway. Normally, a sector rally in equities foretells a new Cycle, especially in an oversold, extended asset. In this case, it was just a vicious trap, a setup for the crash we’re seeing now!

I’ve shown Crude’s sentiment chart a number of times in the past few months, so I know it should be taken lightly when used to discuss Cycle timing. But I’m presenting it again because we now have a situation where sentiment is matching that seen during the massive crash of 2008. There comes a time, even during a bear market, where the market can’t absorb more selling, where it becomes exhausted of sellers. I’m not sure if we’re there yet in Crude, but based on this chart, it’s clearly imminent.

This crash has been a long time in the making, and has seen 6 consecutive months of lower prices without a single instance of back-to-back weekly gains! As a result, we have record low sentiment levels on the heels of the 2nd fastest rate of change (decline) ever recorded. This is a crash, no way around it. The effects on the industry will be long lasting.

As we can see below, price has entered free-fall. Cycle timing is out the window in this sort of scenario, as price can fall almost indefinitely, technically to zero. There is no way of knowing when it will bottom, but of interest is that the 2008 crash also began with a June top and ended with a December low, a 6 month decline. All that we can say with confidence is that the current move down should be very close to finished.

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

View the Site: The Financial Tap

You’re just 1 minute away from profitable trades! please visit http://thefinancialtap.com/landing/try#

By Bob Loukas

http://thefinancialtap.com

© 2014 Copyright  Bob Loukas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules