One of the liveliest discussions on our investment club page lately has been the Oil Rally.
As you can imagine, there are two camps. Those who believe a breakout is occurring and those who, well, are skeptical.
I have to admit, I was in the minority, at first.
I looked at the charts and saw most oil indexes such as XLE at the top end of the Bollinger bands and in over bought territory. Throw in the on again/off again OPEC talk of a production freeze and you have the perfect setup.
A setup for failure.
High probability trading says that the chart will go down. High probability hype says OPEC will never agree to production freezes, especially with prices seemingly to recover.
But then I decided to look a little bit deeper.
I started looking at the basics of supply and demand.
I thought to myself, “what about all those flotillas of oil tankers we heard about six months ago just sitting out at sea?”
Well, apparently they are all moving to port to be processed.
Rig counts are consistently going up to meet demand and even the exploration companies are starting to wear shades because the future is looking bright.
And just to prove a point, IBD ran a whole article on how to cash in on the rally.
So is this a case of the rally is really happening or has the best part of it already happened? After all, if the big publications are writing about it, chances are it has already happened. Or at least already started. I have to admit, some of this stocks have nearly doubled in the past year.
Does this mean that getting in now is just chasing ghosts, or has the market truly turned to the upside?
Even though the charts say to be careful, maybe there really is something to this rally after all.
This has prompted me to start an oil rally watch list. Now, it is just my first cut at it and I am sure it will change over time but here it is.
So, what do you think? Has the outlook for oil really turned the corner and entered Rally Mode, or are we all just following hype now and setting ourselves up for a fall?