Energy-the Next Leg Up!
Navigating the Next Trend of Energy Growth
Oil and the energy sector are fast approaching the 200 day moving average. I am not the biggest fan of moving averages but I know for a fact that almost everyone has one on their chart. Even the traders who say that they hate “moving monkeys” lol. As we are watching this, I am also seeing that the COT report has commercial traders coming in at a significant level where we usually see bottoms in the oil market. (First chart)
I do think that the major trend will be inflation over the next few years with disinflationary periods in between. Are we coming out of that disinflationary period?Let’s take a look.
The futures curve also is set up to bring the commodity higher again. Currently we are long gasoline and the energy sector. Oil is very close to a buy signal as well. This is much different than our recent positioning (we are still holding on to our long tech trades which are holding up very well) however, what I do as a trader is I trade what is in front of me. I do not trade what I hope will happen.
Another one of my boring sayings is “you never know where your biggest winners will come from.” If I have a position in energy and let’s say XLE, gasoline, and oil are in a buy signal. I will take 3 half positions instead of 3 full positions because of how highly correlated they are. This way as they are running together I don’t get hit too badly on down days but if one goes out and has major out performance, I’m not missing that one.
Another way to do it in case you have to choose one or the other you can come up with a way of diagnosing relative strength based on one-6 month relative strength.
CL or XLE, which one has better upside potential?