Crude Crash Of 2014: Watch This Line!
Bears have completely overtaken the oil market. The commodity is trading at 5-year lows near $59 a barrel. That’s down 7.7% on the week and 22% lower on the month. What’s more, it’s a plunge of 34.6% on the quarter and a 38% year-to-date wipeout!
Barring the 2008 financial crisis, the crude crash of 2014 is the most incredible commodity collapse I’ve ever witnessed.
Why The Crude Crash Of 2014 Is So Amazing…
First of all, it caught a lot of astute traders and businessmen completely off guard.
Rewind to September 2014 when this multi-millionaire investor claimed the commodity would eventually run to $150 a barrel.
Most will laugh at his untimely (and costly) prediction now.
But he wasn’t the only high profile energy man caught off guard…
Harold Hamm, billionaire CEO of Continental Resources (CLR), unwound his company’s hedge book in early November. He was certain this year’s oil downturn would be short lived. While he collected a $433 million one-time gain by unwinding his hedges, he also left his $12 billion oil company exposed to cratering oil prices.
When he made his risky move, West Texas Intermediate (WTI) crude was trading just under $80- now it’s at $60.
One look at a price chart of CLR tells you exactly how investors feel about Hamm’s ill-timed decision…
CLR has plunged nearly 40% since early November. The recent drop has the Bakken oil titan down nearly 60% from the 52-week highs set just three and half months ago!
Quite simply, the crude crash of 2014 is amazing due to the economic pain it’s bringing to incredibly business savvy people. Believe it or not, Continental Resources could go bust if crude doesn’t rally back to higher prices soon.
Speaking Of A Crude Rally…
While there’s no question bears are still in control of the market, there’s a looming technical factor that leads me to believe they may back off soon.
You see, a long-term chart reveals something very interesting. Thanks to the crude crash of 2014, the commodity has reached a very important technical level.
Let me show you what I mean…
As you can see, WTI has plunged to the 200-month exponential moving average (ema).
The last time the commodity traded at this level (red line) was in late 2008 during the financial crisis. Notice how WTI nearly doubled in price a year after it hit the 200-month ema in 2008.
Can it double again this time?
It’s not likely… at all.
The world is awash with crude right now. And since OPEC isn’t cutting production (at least not yet), the oversupply situation may last quite some time. Barring an unforeseen Middle East calamity, bulls will be hard pressed to carry crude dramatically higher.
However…
Now that the 200-month ema has been hit, short sellers may start taking some of their immense profits off the table. Of course, when shorts close their positions, they have to buy back their contracts.
As a result, we may be very close to an oversold bounce in crude.
How high could it go?
Given the extremely oversold nature of the market, a quick bounce back to the $70 area isn’t out of the question.
And the best part is, there are numerous ways you can profit from the potential bounce. The easiest way is through the US Oil Fund (USO). When crude rises, so does USO.
If you’re willing to make a more leveraged bet on higher crude, consider the Proshares Ultra DJ-UBS Crude Oil (UCO). UCO seeks investment results that are 2x the daily performance of the Bloomberg WTI Crude Oil Subindex.
Regardless of what you choose, make sure you put a relatively tight stop below your entry point. If crude continues downward to the mid- to low-$50 range, you won’t want to be stuck holding USO or UCO for big losses.
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
