Oil has started to bubble up from its deep hole for the past few months. In fact, in 2016 alone, it’s been up as much as 58% from bottom to top.
Our SSI suite of indicators has done an amazing job of preserving our wealth by keeping us out of the oil patch thus far. It stopped us out just above $90 and our trend indicator has kept us solidly out of all the strong bounces of the past 18 months.
These are reasonable questions. They are questions I find I am asking myself. “Wouldn’t it be great to get long oil below $40 when all those smug smart you-know-whats were screaming about peak oil back at $110?”
It’s times like these that I turn to my back-up arsenal of indicators … and what I’m seeing, isn’t encouraging. What is particularly concerning to me is what the commercial buyers and sellers of oil are doing in the futures markets. They are selling into this rally like nobody’s business.
The bottom section of this chart shows the commercial Commitment of Traders data for the oil futures market over the past three years.
This chart takes the evidence back even further … all the way back to 2010.
Phew! That was close. It’s really tough to shake the past. We’re all “anchored” in the idea of $100+ oil. It was pounded into us by the media and environmental frenzy around peak oil.
As investors, it’s imperative that we evaluate the evidence with fresh eyes every time … and be vigilant about not letting past anchors overly influence our current decisions.
Staying out of the oil patch … for now,
Richard M. Smith, PhD