Jim Rogers Oil Bottom Not In, Only Short-Term Rally

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jim rogers personal photo2Jim Rogers on the Oi Price Collapse : By Spring this year, we will see a new test of the bottom

Jim Rogers – Not The Final Oil Bottom

Jim Rogers: “Whenever you have a major crude collapse (NYSEARCA:USO) like the current one, there has to be a rebound. However, normally the prices test the bottom before rebounding.” This sounds similar to Victor Sperandeo‘s 123 reversal pattern) – Yes we know Jim Rogers is not a technician but could it be that he is without even realizing it? Don’t we all look at charts and observer the same situations over and over again?

Jim Rogers also said: I am not sure if we have seen the bottom yet. Normally, you have a big rally, and then somewhere along the line it peters out. Then you have another test of the bottom. I suspect we will do so this time too. Owing to the collapse in oil prices, inflation everywhere is down. Oil may stay down for a while, or even go further down and test the lows. Maybe prices will go up by a few more dollars. But by spring this year, we will probably see a new test of the bottom. – in ET Now

Nearest Oil Futures Price Chart

Jim Rogers Oil Bottom Is Probably Not Here Yet - Nearest Oil Chart

Source: Rightedgesystems + Quandl Data + OctaFinance Interpretations

Not a long ago Jim Rogers said that the oil crash is also a political move designed by America and Saudi Arabia to put pressure on Iran and Russia. The move is working for the time being. There comes a time when selling begets selling. At such times, people will have to sell. They get margin calls, they are in debt, and all this leads to a downward spiral. (Especially with trend-followers in the game).

Oil Futures Positioning & Sentiment

Trend-follower are also aggressively selling oil but still COT position sizing points to a big net long oil exposure, about 2 standard deviations above the mean. This means that even though trend-followers are short oil, hedge funds are probably long. Until the market is totally cleared and they cover their oil future contracts and the commercials start building a long positions (something that will probably not happen until 2016) we won’t see a real bottom.

COT Oil Chart

Oil Spread Structure

Should traders rush out and buy Crude Oil futures or related ETFs such as United States Oil Fund LP (ETF) (NYSEARCA:USO). Trader legend Peter Brandt think not! “Crude Oil ETFs did not do any better. If a trader bought the ETF OIL on Dec 19, 2008, the day Crude Oil bottomed, and exited at the April 2010 high, the gain was the same 17%. Not exactly a trade to write home about.”

Back-adjusted Oil Futures Price Chart

Jim Rogers Oil Bottom Is Probably Not Here Yet - Backadjusted Oil Chart

Source: Rightedgesystems + Quandl Data + OctaFinance Interpretations

At the moment the spread structure in Crude Oil futures has the same profile as at the 2008 low. The Dec 2016 futures are at $63.1 per barrel, which is a 40+% advance from the low made by the Feb 2015 contract. According to legendary trader Peter Brandt: “the worst case — Dec 2016 Crude Oil could decline to the mid $40’s as the market endures two to three years of depressed prices. Best shorter-term case — a rally by Dec 2016 Crude toward $70 could be a short sellers delight. Crude Oil prices fell a very long way in 2014, so a sharp snap-back rally is possible. As a classical chartist, I do note a possible H&S bottom in the Dec 2016 contract — so a rally toward $75 cannot be ruled out. But such a rally should be gobbled up by hedgers.”

So Jim Rogers is probably right to think that this is not going to be a V-shaped bottom or at least not if you trade it (due to the futures spread). May be for a continuous chart? Same as in 2009.

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