Quite simply, the trend is sharply lower. The massive de-leveraging taking place in the capital markets has not spared crude oil at all; however, this shouldn't be a surprise given the "bell ringing" at the top was none other than a "key reversal month" that has led to mean reversion back into the 50-month moving average. The question is whether this level now crossing at $73.43 can be regained in the days ahead and be used as a "jump off point" to further gains. Unfortunately, we think not. A number of fundamental and technical factors at play will not allow for this to occur, with the probability of an even sharper decline than what we have seen YTD if prices continue to extend lower below this level.
One only need look at the 14-month stochastic that it has just rolled over and exited overbought territory. Hence, it remains quite some distance from levels that in the past have provided for rallies. If the stochastic must move to oversold levels, then it could very well be one year or more before we see a larger and more tradable bottom, this obviously begs the question as to what level crude would obtain before this larger rally could unfold. Our current target is $40,which will come into closer purview if the rising trendline at $60 is violated.
Given this, one would obviously not want to be in the oil stock complex to be sure; with the integrated oil players such as Exxon-Mobil (XOM), Conoco-Phillips (COP). Chevron (CVX) and Marathon Oil (MRO) likely to outperform the Oil Service stocks as they did during the last crude oil downturn. If we are have a favorite, it would be Chevron (CVX) given it sports a 4.10% dividend
Good luck and good trading!
