Crude’s being sneaky

In a news-driven market like this one, every day there’s a new headline. With that, sometimes things actually fly under the radar…

Like what just happened with crude oil.

While news about the trade war and the NBA were hitting the market, the Energy Information Administration (EIA) reduced crude oil demand by 100,000 barrels a day.

Why this matters?

Well if all these different bodies that measure supply and demand for crude are saying that there’s certainly a slowdown… there may just be something to trade.

Here’s what you should know about the recent slowdown in demand for crude…

STEP ONE: A Global Economic Slowdown

If the Institute for Supply Management (ISM) figures from last week weren’t the reality check that the economy is continuing to slow down… I don’t know what else is.

Right now we’re seeing a slow down in manufacturing, a slow down in services, and a slow down in demand for crude. So let’s focus in on one of these slowdowns — crude.


STEP TWO: Analyzing the Slowdown in Crude

The structuring in crude isn’t great. When I say ‘structure’ I’m looking at both the structure of the technicals as well as, the structure of the tend. Both aren’t’ great, Gang. Based on my analysis, I’m anticipating lower lowers in crude as the U.S. dollar continues to rally, and the demand for crude continues to fall.

There is a key psychological barrier in front of the $50 per barrel level, which you can see in the video below…

And while we’ll eventually break through that level, I don’t think it’ll be on the first go around. So it’s going to take some time. So I definitely want to look at some opportunities to short crude.

One place we could think about shorting would be somewhere a little bit more conservative. I’m taking around the 55 to 58 mark. But again, there’s still a lot of uncertainty because we don’t have structure.

So if I’m not feeling confident shorting there, where else could I look?

STEP THREE: Crude Oil Related ETFs 

Well what I always like to do is take a look at crude oil related ETFs.

What I mean by this, is taking a look at what the oil stocks are doing (like OIH, XOP, XLE), and when you do this, you’ll notice that many of these have plenty of bearishness, Gang.

Now if you recall from my issue yesterday, we talked about how we can gauge the sentiment, momentum, and trend of any market (and any timeframe) by using the trading labels. This’ll come in handy here.

If you’d like a refresher, you can read that here.

So how do I identify the outperformers?

I’m looking for double reds, and which markets have the best look at a downtrend, to start.

There are a decent amount to pick from, but some have already possibly reached the lowest point of their downtrend… like OIH.

Ideally, I’d like to short bounces there, but it’s already seen a lot of volatility to the downside. So by my analysis, the chances of it continuing to see that, is less.

No worries. All I need to do is move onto another sector — like XLE.

Now with this particular sector, it’s good to keep in mind the dominance held by both Chevron and Exxon, which greatly affects this sector’s performance. But if we can get a bounce in Chevron and Exxon, that opens the door for other opportunities like EOG and SLB.

If you want to go even further, here’s a list of stocks I’m watching that have the ability to buck the trend of not only the ETF but the oil story, as a whole.

It’s a short and simple list: Marathon Petroleum Corporation (MPC) and Valero (VLO).

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