• October 22, 2019

ELAM: Oil pops on attack, bullish mode returns - Odessa American: Business

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ELAM: Oil pops on attack, bullish mode returns

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Posted: Sunday, September 22, 2019 5:00 am

Last week we noted that oil was just mired in the mid-50s, not showing any real action. Apparently that comment did not go unnoticed in Tehran. Iran launched an attack on a Saudi processing plant. That knocked the world production down about 5%. Recall that the United States has convinced most countries to embargo or refuse to buy Iranian oil. This is in retaliation for Iran’s backing of terrorists and our pulling out of the Iran nuke deal.

The motivation for Iran’s attack is two-fold. One to increase the price of oil for what they can sell. And two, if enough production is taken off the market, some countries might be convinced to ignore the US sanction and buy from Iran anyway. As usual, Iran is the world’s worst diplomat as this comes before the start of the UN meetings.

But, it does appear that oil may resume a bullish trend. Momentum indicators are turning up. Three of the four moving averages I track are coming together. This usually is a prelude to a change in trend.

And there are other positives. Energy ETF XLE is challenging its downtrend line at $62. Conoco COP has moved up nicely to 60 after falling from 78 to 50. The shale ETF FRAK is still sagging. The shale producers simply took on too much debt.

The refiners as previously mentioned bear watching. CRAK is at its 200 day resistance of $28.  The moving averages are coming together for Valero VLO and it has risen to $85.

While the energy sector is the weakest of the ten ETF sectors in the stock market, things are looking better there. Tech stocks, specifically Microsoft MSFT, are in the lead. Gee what a difference replacing Steve Ballmer with Sartya Nadella as CEO has made.  Small capitalization stocks represented by the Russell 2000 are challenging resistance at 1575.  The Dow Industrials are at new highs but need to be joined by the Transports for a Dow Theory buy signal. At 10,750, the previous high is 11,500.

I expect that will happen. This has been a better September than usual, and the pullback we expected only lasted a couple of days. Our overall outlook is positive into 2020. Yes there will be some more fall hesitation. A Dow Theory buy confirmation with a new high in the Transports will help. The NASD is already there.

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