Nymex Crude Oil Is Just About Too Cheap to Ignore, Chart Says

Buy Nymex crude oil down to its annual value level at $26.31. The weekly chart is oversold and will soon show a reading that's too cheap to ignore.
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Over the weekend Russia and Saudi Arabia began a price war over crude oil. The dispute was sparked after these countries could not agree on production cuts. 

My call is to buy Nymex crude oil down to its annual value level at $26.31.

OPEC and other oil producers are now in a price war. This happened as the effects of the coronavirus outbreak have reduced demand for oil.

Nymex crude oil futures are one of the markets I track daily.

Here’s the weekly chart for the nearby futures contract, which shows the reasons to buy oil now.

The Weekly Chart for Crude Oil

Weekly Chart For Nymex Crude Oil

Weekly Chart For Nymex Crude Oil

Courtesy of Refinitiv XENITH

The weekly chart for crude oil shows that the nearby futures contract began the year overbought. 

On Jan. 17 the weekly chart was downgraded to negative as a warning that weakness would follow. 

Oil is now below its five-week modified moving average of $46.97. 

Oil fell below its 200-week simple moving average, or reversion to the mean, at $55.61 during the week of Jan. 24. This accelerated the downside.

The 12x3x3 weekly slow stochastic reading is projected to end this week declining to 13.08 from 16.16 on March 6. This level will likely fall below 10 next week, making oil too cheap to ignore.

Oil set its 52-week high of $66.60 during the week of April 26, 2019. This is when its stochastic reading was 93.6, putting oil in an inflating parabolic bubble formation. 

Bubbles always pop and the decline from $66.60 to this morning’s low of $27.34 is a decline of 63%. Now, the drop has gone too far.

Trading Strategy: Buy weakness down to its annual value level at $26.31. The upside is back to its 200-week simple moving average at $55.60.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Monthly levels for March were established based upon the Feb. 28 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share-price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the past 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.