Oil About To Clean Up… [Dirty Dozen]

Jul 9

Remember that big stack poker is a game of patience. You don't have to make a big play in every marginal situation that comes along, just as a good hitter in baseball doesn't have to swing at balls outside the strike zone. Wait for good solid situations before making big plays. ~ Dan Harrington

In this week’s Dirty Dozen [CHART PACK] we talk about the continuation of the current correction but discuss how sentiment flipping likely puts in a floor not too far below. We then cover BTCUSD, a budding breakout in crude along with some energy equity breakouts, plus more…

Expect the correction to continue on the back of rising yields. Market internals are still supportive so odds favor a sideways to slightly lower move over the next 1-2 weeks as sentiment gets worked down. The lower Bollinger Band should act as support barring yields don’t rise too fast going forward.

On SPX sentiment via a recent Sentix report (emphasis by me):

“A relatively small price setback in the S&P 500 is enough for fear to arise. We measure the highest pessimism for U.S. stocks in 2023. Statistically, this sentiment level is a clear anti-cyclical buying argument: - especially on the view of the next 8 weeks, on average 4.5% price gains beckon with a hit rate of 80%. Consequently, we give the signal with the green buy arrow already today. Note: On a 1-3 week view, however, there is on average no positive return. Rather, the prices fall on average another 1.2%.”

We continue to sit in our BTCUSD long trade, which is in a tight sideways consolidation. We’d add on a breakout above this range and cut on a daily close below.

Sentix on BTCUSD’s latest TD index numbers (composite sentiment indicator):

“The consolidation of the crypto market is proceeding as in the textbook. Sentiment is cooling down to neutral levels, and medium-term confidence remains intact. Thus, investors can continue to look upward... The TD index is once again returning to the buy zone and underlines the upward trend in bitcoin in the coming weeks.”

If you don’t have exposure to oil here now would be a good time to add some to the port. Below is a weekly chart showing the tape is making an effort to break out from recent consolidation.

While positioning is providing a strong contra tailwind as @WarrenPies notes:

“Last week's rally triggered a powerful Managed Money buy signal for Crude.

Hedge funds short positioning had reached levels last seen during the initial COVID craze.

They are now unwinding.”

Our biggest positions are in VIST and TDW. But there are plenty of other great-looking names in the space. Here’s a weekly chart of DO showing a strong breakout.

And a breakout from Noble Energy (NE) on the weekly as well.

We pointed out the left-for-dead nature of the cannabis sector just the other week. And it now looks like Lazarus might be starting to rise… too early to call this a change in trend but worth keeping on your radar.

Our favorite name in the space, Verano Holdings (VRNO:TSX), climbed to the upper part of its 8-month channel last week.

A good risk hedge here is long JPY where positioning is crowded short, as Jason Shapiro points out (JPY tends to perform well in risk-off environments).