Consumer's early Christmas gift

Happy Belated Thanksgiving.

I hope everyone had a wonderful time with family and have lost those feelings of being too full.

Since the double bottom in 2009, oil has risen more than 300% peaking in April of 2011.  Since that high, it has consolidated and been range-bound bouncing between $80-$110/bbl.  Unlike virtually most other commodities which are in a bear market, oil has held up pretty well.  That is, until earlier this year when in August it broke below its long term support line.  As you can see in the chart below it has been in a free fall ever since, closing Friday at $66/bbl, down 14% this week alone.  As with most commodity price declines, over-supply and weakening demand tend to be the major contributors.

Declines like this are eventually followed by either a change-in-trend rally or a multi-week strong counter-trend push so an opportunity (eventually) awaits. Before you bottom guessers try to catch the proverbial falling knife, be aware the measured move out of this pattern is around the $60/bbl level (the red circle on the blue horizontal line), the same price it found support in July 2009. If price were to follow symmetry down as it did up, its possible we could see oil prices back in the $40/bbl range next year. Unless you are nimble and investing/trading on a very short time frame or being short, it would be my recommendation to stay away from this sector until price has confirmed a bottom is in. What I will be looking for is volume confirmation (via exhaustion selling) combined with some sort of bottoming pattern (such as a divergent low double bottom).  Then and only then should those looking for a swing long investment jump in.

The smart money is short oil and energy stocks right now and the trend is definitely with them. If you too are short, congratulations but be careful and insure you have protective stops in place. A quick reversal in plans by OPEC to cut supply would be all that is needed to turn a profitable investment to a loser.