Is Oil back at $100 and nobody told us? You would think with the Bloomberg headlines “Oil is on a Gigantic Tear,” and “Oil Enters Bull Market” that the down trend in Oil Prices may be over. Turns out, this is an example of why you sometimes need to read more than just the headlines, in one of those read between the lines / apply some context moments. Here’s Bloomberg’s context:
“After plunging for months, the price of oil has boomed over 20 percent in just the last three trading days. Last Friday it was just over $44 per barrel. Today it’s selling at nearly $54 per barrel.”
Now, Tuesday’s highs were in fact in the $54 range (even though it ended up the day in the $52 range) and the “bull market” math does work out if you buy into the sacred 20% level for signifying a bull market. But it sure doesn’t feel like a “Bull Market” in Crude Oil after the unbelievable veracity of the sell off, does it? There should be some metric which adjusts the ‘bull market’ level for the just lived through ‘bear market’ levels.
Which leaves us with the question, how can you tell when these articles are just stirring the crude oil pot, and when is the market actually coming out of its months long downturn? How do professional trend followers tell when a trend is over? Or about to be over?
Is it as simple as watching until the market breaks through a carefully drawn trend line on your chart? It can be. But the professional traders who collectively run billions of dollars in managed futures programs with trend following models, actually use a few different methods for determining when a trend is over; looking at everything from moving averages to swing highs and lows, to directional indicators to relative prices.
Using some of these tools, we can look at just how far away (even after this three day “Bull Market”) Crude Oil WTI futures are from signaling an end to the down trend. PS – we assumed a closing price of $52.98 for the numbers below (that’s what was on our screen at the time we started writing).