[+ Font] :: [- Font] :: Printable

Special energy report

By Jack Chan at www.simplyprofits.org
December 8th, 2020

We have been avoiding this sector much of the time since oil prices topped in 2008. It's been a brutal bear market for twelve years, and it may have finally ended this year during the COVID19 pandemic. Let's look at the supporting evidences.



First and foremost, our long term trading model confirms a major buy signal today. The oil services index has lost more than 90% of its value since topping in 2008. This 12 year brutal bear market may have ended this year during the COVID19 pandemic panic sell off.

• The last oil bull market began in 2002 when prices reached a low of $20 on a monthly basis.
• The top at $140 came six years later in 2008.
• A 12 year grinding bear market may have ended this March when panic selling resulted in oil prices dipping into the negative briefly, but touching and bouncing from $20 on a monthly basis. A classic double bottom.
• If history is a guide, we should be at the beginning of a bull market lasting at least a few years.

• The oil services index $OSX mirrors the crude oil chart.
• The last bull market saw $OSX going from 70 to 350 in the same time frame, for a 400% gain.
• $OSX lost over 90% of its value during this 12 year bear market.

• The dollar has an inverse relationship with commodity prices, although not necessarily on a daily basis.
• USD was obviously in a bear market from 2002 to 2008, when oil and oil stocks were in a raging bull market.
• USD then went sideways to up in a bull market while $OSX went sideways to down in a bear market.
• The recent time frame from 2017 to 2020 is very interesting: $OSX crashed from 200 to 25, but USD failed to reach a new high, thus resulting in a divergence.
• The lower high in 2020 for USD suggests that the dollar may have entered into a new bear market.

• Canadian dollar (the loonie) also has an inverse relationship with USD, since the Canadian currency is very much dependent on the resource sectors.
• The loonie made a lower low in 2020, but USD failed to reach a new high, thus another divergence. It may also suggest that the loonie bear market has ended.

How did gold stocks perform during these time frames?

• The gold bull market lasted longer, and the bear market shorter.
• The new gold bull has already started in 2016.
• We are 60% invested in the gold sector.
• Let's look at the energy sector ETFs.

Long from 103.50, 10% allocation.


Long from 30.44, 10% allocation. .


Long from 44.62, 10% allocation. .


Long from 4.40, 10% allocation. .

Summary

We cannot predict, but we can prepare.
Current supporting evidences suggest that the 12 year bear market in the energy sector may have ended this year during the pandemic liquidation.
We have allocated 40% of our capital to this sector during the recent cycle bottom, and all positions are firmly in the black.
New money can buy/accumulate at the next cycle bottom, but of course you may have to wait for the cycle to top first.
If you are uninvested, you can tiptoe into the market by initiating some positions when the short term is oversold during pullbacks. I point out the short term overbought/oversold conditions in all three sectors in my daily email messages.
This sector, like the gold sector can be very volatile and has sharp short term swings, reacting to news events. I hold these positions without stops, and I am constantly mentally prepared for sudden sharp price movements.

Energy /oil stocks and ETFs have been beaten down in a long grinding bear market for 12 years.
Is our current new long term buy signal a generational buying opportunity?
You make the call.

End of update

December 8th, 2020
Jack Chan
website: www.simplyprofits.org