Time to get bullish on oil?

The last time I wrote about crude oil here, it was to explain why oil had fallen that week on what seemed, on the surface, to be bullish news. In that article, I warned that the “logical” trade that follows the news is not always the right one. Depending on the market conditions entering the news or data release and the nature of the news or numbers, softening an initial reaction in the obvious direction is very often a better play.

But not always.

Sometimes the news is potentially so impactful that a move in the obvious direction is sustainable, and momentum trading is clearly the best option. If you’re familiar with how I work, you’ll know that I base my trading bias on the kind of fundamental conditions that most news stories relate to, but my level of conviction is largely a function of more technical analysis. If a “logical” change in direction based on fundamentals is accompanied by a chart pattern suggesting the same, it adds significant strength to my view.

That’s what we’ve seen in the last week or so when it comes to crude oil.

The news is pretty obvious to anyone paying attention. The ongoing war in the Middle East is intensifying, with Iran firing a barrage of missiles at Israel in retaliation for their attacks on Hezbollah, including in Lebanon, which killed the group’s leader. It’s all very worrying, even if those of us with some life experience can’t help but feel a distinct sense of déjà vu. I said the idea before…

The last time I wrote about crude oil here, it was to explain why oil had fallen that week on what seemed, on the surface, to be bullish news. In that article, I warned that the “logical” trade that follows the news is not always the right one. Depending on the market conditions entering the news or data release and the nature of the news or numbers, softening an initial reaction in the obvious direction is very often a better play.

But not always.

Sometimes the news is potentially so impactful that a move in the obvious direction is sustainable, and momentum trading is clearly the best option. If you’re familiar with how I work, you’ll know that I base my trading bias on the kind of fundamental conditions that most news stories relate to, but my level of conviction is largely a function of more technical analysis. If a “logical” change in direction based on fundamentals is accompanied by a chart pattern suggesting the same, it adds significant strength to my view.

That’s what we’ve seen in the last week or so when it comes to crude oil.

The news is pretty obvious to anyone paying attention. The ongoing war in the Middle East is intensifying, with Iran firing a barrage of missiles at Israel in retaliation for their attacks on Hezbollah, including in Lebanon, which killed the group’s leader. It’s all very worrying, even if those of us with some life experience can’t help but feel a distinct sense of déjà vu. I’ve previously pointed out that there is nothing new about conflict in the Middle East, and that while violence in the region often disrupts short-term supply, it rarely has a long-term impact on price.

There is, however, a chance that things will be different this time. Benjamin Netanyahu is a tough guy at the best of times. But now, with his political future bleak before this conflict began, and with most of the world believing that a strong response to the Hezbollah terror attack that sparked these problems is fully justified, he seems ready to step into the role of strongman. to the extreme and appears to be committed to an attempt to wipe Hezbollah off the face of the Earth, no matter the cost. Nothing, neither the massive amounts of civilian casualties nor the ever-increasing monetary costs, will deter him.

Hezbollah, on the other hand, believes it has God on its side and is acting on a centuries-old grievance. These are people who have been told from birth that they are victims and that God wants them to take revenge. Everything they do, even the brutal and inhumane attacks on innocent civilians are, for them, righteous acts. And with every civilian casualty inflicted on their people by Israel, they grow in number as the spouses, children, siblings and parents of the dead join their ranks. They’re not about to give up anytime soon, again, no matter the cost.

Additionally, the US in an election year, needing strength especially in foreign policy, Russia is desperate to destabilize any part of the world to draw attention away from Ukraine, and China is doing the same while continuing to rattle sabers in the Sea South China. The whole world, it seems, would be happy to see this regional conflict spread.

So, from a trading perspective, it is best to at least switch to a bullish bias in anticipation of supply disruptions from the Middle East. The chart says to do that too. As I write this on Thursday afternoon, WTI futures just traded above $72, suggesting the third wave of a new Elliott pattern. From a chart analyst’s perspective, the old bear trend that I’ve been writing about and trading on for months ended a few weeks ago when the fifth wave of the classic Elliott WTI bearish pattern ended and became an obvious pivot.

Now, a clearly defined five-wave pattern to the upside looks extremely likely…

What we have is a global situation that could put extreme pressure on oil supply and a chart that points to a move back up, probably around $80. Put all this together and I’m going to be on an optimistic bias for a while. For those not familiar with my terminology, that doesn’t mean I’m going to walk a lot and stand my ground. It means that when trading with my usual time horizons of a few hours to a few days, I will be more inclined to reset and run long positions that are winning and allow some flexibility in stop losses when it is long. On the other hand, I will be more inclined to fully short, either for profit or loss, and short stops will be inviolable.

By doing this, I will be much more than short for a while and will benefit when the market continues to rise, as seems the most likely course of events here, barring any miraculous detention in the Middle East.