{"id":79986,"date":"2015-10-23T04:10:23","date_gmt":"2015-10-23T08:10:23","guid":{"rendered":"http:\/\/countingpips.com\/?p=79986"},"modified":"2015-10-23T07:25:37","modified_gmt":"2015-10-23T11:25:37","slug":"make-oils-pain-your-gain","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/10\/make-oils-pain-your-gain\/","title":{"rendered":"Make Oil\u2019s Pain Your Gain"},"content":{"rendered":"
October 23, 2015<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Oil<\/p>\n

By Jonathan Rodriguez<\/a>, Senior Analyst<\/em><\/p>\n

Following a 37% decline this summer, crude oil has shown signs of recovery.<\/p>\n

Since August 24, crude has rallied 19% on declining global rig counts. Many investors believe we\u2019ve seen the bottom, and they\u2019re loading up on energy stocks.<\/p>\n

Not so fast!<\/p>\n

Crude inventories<\/a> are approaching maximum capacity, and the International Monetary Fund just downgraded its 2016 outlook on global growth.<\/p>

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We\u2019re certainly closer to oil\u2019s bottom than its top, but a large number of oil companies are overbought on weak fundamentals.<\/p>\n

Don\u2019t Fall for the False Signal<\/h2>\n

The Energy Select Sector SPDR<\/strong> Fund <\/strong>(XLE<\/a>) \u2013 the exchange-traded fund that tracks the average movement of the S&P 500 Energy Index \u2013 has lagged the S&P 500 for most of the year.<\/p>\n

But over the last month, XLE has outperformed the S&P 500 by more than double, as you can see in the following chart.<\/p>\n

\"Is<\/p>\n

This outperformance can be attributed to several factors.<\/p>\n

First, global rig utilization is down 71% year over year, and production declines have elevated the price of crude oil. Eyeing a bottom, many investors have taken long energy positions.<\/p>\n

The resulting rally has forced a large number of hedge funds to close out massive short positions to cover losses. This is known in the financial markets as a short squeeze.<\/p>\n

But oil demand has declined even faster than production.<\/p>\n

According to a U.S. Energy Information Administration report released on Wednesday, crude inventories rose by 8 million barrels. Analysts, on the other hand, expected an increase of just 3.9 million barrels, according to Reuters<\/em>.<\/p>\n

In short, oil\u2019s momentum is topping out, and now it\u2019s time to get short.<\/p>\n

The Short Before the Storm<\/h2>\n

It\u2019s too early to call the bottom, but there\u2019s little doubt that the short-term rally in oil stocks is unsustainable.<\/p>\n

Plus, the long-term downtrend in oil stocks has yet to be broken.<\/p>\n

A closer look at the XLE\u2019s constituents reveals Chevron Corp.<\/strong> (CVX<\/a>) as the biggest gainer \u2013 as well as the most likely to fall in the near term, based on the company\u2019s relative strength index (RSI).<\/p>\n

Chevron\u2019s RSI just crossed below the overbought threshold of 70 from a high of 72 last week. And the stock has met resistance at a 12-year support line \u2013 another bearish indicator.<\/p>\n

\"Trade<\/p>\n

Fundamentally, the company is trading at 25 times earnings \u2013 a 41% premium to both its peers and the S&P 500.<\/p>\n

This makes Chevron a juicy short-term target for short sellers.<\/p>\n

While volatility remains low, options are also a cheap and viable play on shares. Bearish speculators might consider near-dated out-of-money put options to accelerate returns.<\/p>\n

Bottom line: Oil stocks will recover sooner than later, but not before another big spill. Profit on their downside before you get long.<\/p>\n

On the hunt,<\/p>\n

Jonathan Rodriguez<\/p>\n

The post Make Oil\u2019s Pain Your Gain<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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By WallStreetDaily.com By Jonathan Rodriguez, Senior Analyst Following a 37% decline this summer, crude oil has shown signs of recovery. Since August 24, crude has rallied 19% on declining global rig counts. Many investors believe we\u2019ve seen the bottom, and they\u2019re loading up on energy stocks. Not so fast! Crude inventories are approaching maximum capacity, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-79986","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/79986","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=79986"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/79986\/revisions"}],"predecessor-version":[{"id":79999,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/79986\/revisions\/79999"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=79986"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=79986"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=79986"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}