My obsession with crude oil and energy stocks is well-documented. I wanted to talk a bit about this daily chart of the oil & gas explorers ETF. I see it going through these phases:
+ Magenta – a very well-formed head and shoulders top; the bulls didn’t have any idea what was about to happen to them;
+ Yellow – the initial plunge, prompted by the magenta pattern, with some stabilization;
+ Cyan – after the Saudis said they weren’t going to curtail production, all bets were off. After Thanksgiving, things went into another free-fall, double-bottoming in late December and early January;
+ Grey – this is what I’ve been stomaching all month – – a blinkered recovery
In spite of crude oil weakening quite clearly, the energy stocks seem to be giving me the bird and not budging. I think they’re going to budge sooner or later, and to the downside. At a minimum, I think they’ll challenge the lows we saw last month. If deflation really grabs hold, we could conceivably see oil in the 30s this year, with energy stocks following it south.