The surprise OPEC+ production cuts last week had investors frantically positioning themselves in anticipation of the opportunities, risks, and opportunity risks surrounding crude oil exposure.

What Just Happened?

On Monday, OPEC+ announced it was reducing its output by 1.16 million barrels per day. The cuts are to begin in May and will continue until the end of the year.

Why’s This a Big Deal?

The global economy runs on oil. As a major global input, it will affect not only the cost of production, but consumer costs as well. Even if a product isn’t made using petroleum, its means of transportation and delivery are likely powered by petroleum. So, in a way, oil powers almost everything you buy.

Making Matters Worse…

Given Russia’s invasion of Ukraine, this move has shaken up the global energy markets and further exacerbated the tense geopolitical landscape.

Remember OPEC’s earlier reduction of two million barrels back in October? Well, that increased tensions between the US and its long-time ally, Saudi Arabia. Currently, the nation is seeking entry into BRICS, which can reduce demand for petrodollars (another huge matter altogether that we won’t discuss here).

What Are Analysts Predicting?

Several analysts say that the cuts may push crude oil prices back up to $100 per barrel (or higher).  CMC Markets’ analyst Tina Teng told CNBC that oil prices might move toward the $100 mark, considering China’s reopening and Russia’s output cuts. A Reuters® report also supported the possibility of oil prices moving toward $100 a barrel.

What Are Investors Thinking?

They’re probably tempted to jump into a trade and readjust their portfolio for heavier crude oil exposure. Is it a wise thing to do? After all, Saudi Arabia’s cuts aim to counter the global decrease in industrial output, so it says. Its move aims to stabilize the oil market.

Fundamentally, it may be wise to go long oil, especially considering how this “stabilizing” action may also be a form of geopolitical posturing in support of BRICS and defiance of the West.

Headwinds and Turbulence Ahead

Let’s use the United States Oil ETF (USO) as a proxy for WTI crude oil. The fundamental driver may be enough to fuel oil’s trajectory toward $100 a barrel. But it’s likely to be a turbulent flight, considering the resistance levels ahead (see chart below).

CHART 1: WHICH WAY FOR OIL? USO broke down from a rectangle formation. A breakaway gap took prices just below the resistance within the rectangle. A divergence between price and the Chaikin Money Flow indicate the possibility of increased buying pressure.Chart source: StockChartsACP. For illustrative purposes only.

In March, oil broke down from a three-month rectangle formation. Typically, this is a continuation pattern that hints former support will turn resistance. But then, OPEC+ came along with an unpleasant surprise.A breakaway gap occurred over the weekend, falling short of resistance within the rectangle (see the blue-dashed line). In general, gaps are likely to be filled or tested. To demonstrate convincing momentum for USO’s upward movement based on the fundamental principle, let’s anticipate that it won’t drop below the rectangle formation’s low point (support) and will instead break through the formation itself.Note the divergence in the Chaikin Money Flow in relation to USO’s low, as it broke below the bottom of the rectangle formation. This indicates the possibility of increased buying pressure while USO’s price was sinking.The main feature here is the multiple resistance levels facing USO on its way up toward analysts’ $100 price target.

The Bottom Line

Why make such a big deal out of this? It’s only a big deal if you’re not expecting it. Investors relatively new to (or unfamiliar with) basic technical analysis should know what to expect.

It’s like a turbulent flight. You have conviction that you’re getting from point A to point B, but the bumpiness can easily shake your resolve. But while flight passengers have no choice but to power through the ride, investors can easily exit.

And while no expert can predict whether oil (or, in this case, USO) will ever reach analysts’ fundamentally-driven price target, using these charts can at least help you map out the course and prepare for several technical headwinds ahead. This, in turn, can give you more options to manage or adjust your trade, rather than simply bailing out.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jesse Livermore is one of the most famous (and infamous) traders of all time. In his classic (written under a pen name) Reminiscences of a Stock Operator, he tells his story of how he became a successful trader. Livermore’s focus on price and human nature made him a pioneer in both technical analysis and trading psychology. In this week’s edition of Trading Simplified, Dave begins a series of videos delving into the wisdom of Livermore, drawing mostly from Reminiscences. He also fills in some background information to help you understand Mr. Livermore’s trials and tribulations. Further, as an active trader, he discusses how the information is just as timely today as it was over 100 years ago.

This video was originally broadcast on April 5, 2023. Click anywhere on the Trading Simplified logo above to watch on our dedicated show page, or at this link to watch on YouTube. You can also watch this and past episodes on the StockCharts on-demand video service StockChartsTV.com — registration is free!

New episodes of Trading Simplified air on Wednesdays at 12:00pm ET on StockCharts TV. You can view all recorded episodes of the show at this link. Go to davelandry.com/stockcharts to access the slides for this episode and more. Dave can be contacted at davelandry.com/contact for any comments and questions.

April is Financial Literacy Month—a good excuse to bump up your financial knowledge so you can be better equipped to manage your personal finances. To support your financial journey, StockCharts is featuring several articles in April that focus on how you can take advantage of the educational tools that can make you a smarter trader and investor.

With such a large universe of stocks, exchange-traded funds (ETFs), mutual funds, and so on to choose from, it can be tempting to base your decisions on a tip you received from a friend. But that doesn’t necessarily end up well.

A better plan would be turning to techniques that have worked. Jesse Livermore, thought of as one of the greatest traders who ever lived, uses a three-pronged approach—timing, money management, and emotional control. Very basic, yet logical. It’s one that any trader can apply when it comes to finding which stocks to trade. 

Assume you’ve done your market analysis and, based on the action of the broader indexes, you’ve determined that large-cap stocks are performing well and are likely to trend higher. You want to get in on the action, but which stocks or funds should you trade?

Scanning the Stock Universe

Your objective is to make money on your investments. But how are you going to achieve it?

The key is identifying the setups that have a high probability of moving in a specific direction. You want your investments to have enough of a move that you can profit from. Unfortunately, traders often get caught up in making that money quickly. With such a mindset, it can be easy to make bad judgments. And the market is good at telling you when you made a bad judgment.

Wouldn’t it be great if you knew you were wrong before the market told you? After all, you don’t want to tie up your money in an investment that doesn’t move much or one that loses money. 

A prerequisite to trading or investing is to understand the market and yourself. In this age of information overload, it may be best to shut out everything you’ve heard and focus on looking at price charts. Go through charts of stocks that have had a long-term move in one direction and then reversed. Make a note of the different support and resistance levels. Analyze the price action at these levels. Did price make an explosive move for a few days, then pause and reverse? 

Once you understand price action, the first step is to think about what types of stocks are likely to give you the most bang for your buck. Do you want to find:

stocks and funds that have reached their 52-week high,stocks and funds that are reversing from a downtrend, or stocks and funds that are crossing above a SCTR of 80? 

Let’s say you’re looking for stocks that are in a new uptrend because, well, you want to take advantage of the developing trend. From looking at your charts, you’ve identified that, once a stock starts to trend higher, it moves pretty quickly for a few days, then slows down and pulls back. After the pullback, it continues to move higher.

You want to get in on this trend, but the key is to get in at the right time.

Scans To Identify the Best Stocks

Once you’ve formulated the price behavior of a particular stock, you can run some scans. The good news is that StockCharts has predefined scans that mimic some of the more common price actions of stocks. There are a few different ones for identifying stocks that are in a new uptrend.

How To Find Predefined Scans in StockCharts

From Your Dashboard, under Member Tools, select Advanced Scan Workbench.Select Predefined Scans and look through the large collection of scans.Try out a few of the scans. Scans are sorted based on equities and mutual funds. Equities are sorted by the exchanges they trade in and include US, Canadian, UK, Indian exchanges.Edit the scan criteria so it does what you want it to do.Save the scan to a ChartList or download the .csv file.

Say you used the Stocks in a New Uptrend (Aroon) predefined scan to start your scan. You’ll see that the results are sorted by the exchanges, and there’s a column for mutual funds. So, in the image below, you see 27 NYSE stocks made the list. Click on it to bring up a list of all those stocks. You could sort the list by any of the columns. For example, if you’re looking for those with the highest SCTR score, click on the column heading to sort in ascending or descending order. If you want to sort by the universe, you can click on the U column and sort.

CHART 1: PREDEFINED SCANS. To look for the best stocks to trade, review the predefined scans in the StockCharts platform. It’s easy to modify the scans so it meets specific criteria.Chart source: StockCharts.com. For educational purposes only.From your earlier analysis, you see that large-cap stocks are outperforming. Based on that, you want to identify large-cap stocks that are in a new upward trend. After sorting by universe, you identify a handful of large-cap stocks. Hover your mouse over the stock symbol to see a small chart. It’s one way to quickly run through the charts to see if they’re close to their highs or lows or if the price is more in line with your risk tolerance level. Running through the list will help to narrow down your stocks even further.

Zeroing in on a Stock

Say Pfizer, Inc. (PFE) was one stock that you shortlisted. Pull up a chart of the stock to do your analysis. The Aroon Up is at 100, and Aroon Down is at 28, which means the strength is to the upside. But will the uptrend sustain? To answer this question, you could perform a more in-depth analysis.

CHART 2: STOCK IN A NEW UPTREND. The Aroon indicator helps identify stocks that are in a new uptrend. Pfizer (PFE) was one of the stocks in the scan results. Doing a more in-depth analysis of the stocks helps to identify entry and exit points.Chart source: StockChartsACP. For educational purposes only.

The Aroon indicator helps identify emerging trends. The Aroon-Up has moved above the Aroon-Down, with Aroon-Up well above and Aroon-Down well below 50. The third stage is when Aroon-Up reaches 100 while the Aroon-Down is relatively low. So, in the case of Pfizer, the emerging trend reached all three stages pretty quickly. The Aroon Oscillator in the lower sub-chart shows the difference between the two.

If you look back at the last uptrend, from October to December, the crossover occured closer to the 50 level, whereas this time, it was lower—closer to the 30 level. The stock price had some big moves during the uptrend, then slowed down a bit. In the most recent uptrend, volume increased on March 31 and April 3. The down day on April 4 had a slightly lower volume.

If the uptrend continues with strong moves with high volume, it could be a potential candidate for a long position. But the stock is trading a hair below its 50-day moving average (MA), so, if you were considering trading Pfizer, you may want to set an alert for when the stock price crosses above the 50-day MA, then observe it. If the stock slows down, pulls back, and then continues its uptrend, there’s a strong chance you could make a decent profit.

Stay in Tune With Stock Price Movement

It’s important to understand how a stock moves to time your exits. It requires patience, but it can be worth the wait. Once you decide to enter a long position in the stock, watch how price moves. In particular, look at the momentum in the up moves vs. the down moves.

Once you sense a slowing down, you may want to exit your positions. Looking at the chart, the stock tends to fall hard and fast. You don’t want to get caught up in that downfall, so you can’t let your emotions control you. Your winning trade could turn into a losing trade, and you could end up hanging on to a losing investment for way too long. You know yourself better than anyone else. Risk only what you feel comfortable losing in the trade.

You can apply this type of analysis to different stocks before deciding which stock to trade. Stay tuned for more articles during Financial Literacy Awareness month that focus on helping you become a more empowered trader and investor.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

SPX Monitoring Purposes: Long SPX on 2/6/23 at 4110.98.

Monitoring Purposes GOLD:  Long GDX on 10/9/20 at 40.78.

Long Term SPX Monitor Purposes: Neutral.

Above, we have the chart of the daily SPY. The pink area shows the times when the 10-day TRIN was above 1.20, a reading which shows panic and usually comes near lows in the SPY. The blue area shows when the 10-day TRIN is below .80, a reading that shows euphoria and normally comes near highs in the SPY. Right now, the 10-day TRIN stands at 1.08 and near-neutral reading for the market. If the rally continues (which we think it will), the 10-day TRIN may drop to .80 or lower and give us a “heads-up” that the market may be near a high and that may develop near 470 on the SPY. The purple area shows where most the 10-day TRIN reading was above 1.20, which was from the 370 to 405 range on the SPY and lasted 10 months, which in turn suggests a support area. This sideways pattern appears to be breaking out to the upside and giving a target to the 470 range, which is the January 2022 high. An interesting statistic: in pre-election years (like this year), April is up 94% of the time. If January was up (it was up over 6% this year), April is up 88% of the time.

The chart above is updated to today’s trading, but what we said yesterday is still relevant. “The breakout area on the monthly SPY chart is near the 405 level, which was exceeded on last Friday’s close. There was also a ‘Sign of Strength’ for the month on March (noted on the chart). The pattern that appears to be forming is a ‘Head-and-Shoulders bottom’ and has a measured target to the 470 level, which is the January 2022 high. The SPY didn’t quite get to the 50% retracement level, measured from the March 2020 low (50% level noted on chart). A 50% retracement suggests the market will at least rally back to the old high (January 2022 SPY 470) or can mark the half way point of the move up, which would give a much higher target. The bottom window is the monthly Slow Stochastic, which turned up last November and suggests an uptrend was started back then.”

Tim Ord,

Editor

www.ord-oracle.com. Book release “The Secret Science of Price and Volume” by Timothy Ord, buy at www.Amazon.com.

Signals are provided as general information only and are not investment recommendations. You are responsible for your own investment decisions. Past performance does not guarantee future performance. Opinions are based on historical research and data believed reliable; there is no guarantee results will be profitable. Not responsible for errors or omissions. I may invest in the vehicles mentioned above.