In today’s Money Weekend…slim pickings…oil bouncing out of buy zone again…Woodside may be turning a corner…magnetic trading workshop…and more…
I have spent the last couple of weeks after my holiday scouring the markets for new trading opportunities for members of my trading service Pivot Trader.
After many hours of work scanning through my watchlists, I have come up empty-handed apart from the opportunity I see developing in oil and gas stocks which I discuss below.
I called a few trader mates of mine to discuss the dearth of opportunities and received the same response from each of them. They were all struggling to find compelling trades just as I was.
One of them said if you weren’t on board the key sectors that are currently running, it was too late to jump on them now and the rest of the market was drifting.
Thankfully, the Pivot Trader portfolio has exposure to uranium, nickel, lithium, rare earths, and internet retail, which are all seeing strong buying pressure. But I’m closer to taking profits in those positions than entering new ones.
I am a technical analyst, so I try to ignore my gut feel and listen to the charts, but something feels a bit off about the current market. It feels like we are near a profit-taking phase.
The desire to trade can be overwhelming and it can lead to big mistakes. When the market isn’t dishing up compelling trading opportunities, it pays to listen to the market and sit on your hands until a great trade jumps out at you.
I keep telling members of my service that the market moves in cycles. Sometimes making money is as easy as shooting fish in a barrel. Then all of a sudden the music stops, and it becomes almost impossible to make a cent.
Getting in tune with the market and accepting whatever the market is dishing out without trying to force things is the way to go. I reckon at the moment the best course of action is to remain patient and consider taking some money off the table if you have had a good run over the past six months.
If I had a gun to my head and was forced to trade, I’d focus on the oil and gas sector which is recovering from a heart-stopping plunge last year during the COVID crash.
The technical picture for oil looks strong and I’m expecting the rally to continue and possibly surprise to the upside.
Oil bouncing out of buy zone again
This is a monthly chart of Brent crude oil prices going back nearly 30 years. If you have been reading my Trader’s Corner articles you should understand that I look for reversals in key zones within waves.
The chart above is a great example of why I use the levels that I do to trade.
The immense rally from 1999 to 2008 is the wave that I use to make my calculations. The buy zone is the 75–87.5% retracement of the wave. The sell zone is the 12.5–25% retracement.
Look at how many times over the past decade that prices respected the buy and sell zones.
The midpoint of the wave is the point of control which acts like a magnet for trading.
We have just witnessed the third bounce out of the buy zone of the wave and there is a chance we could see prices revisit the point of control at $78.50 on this move.
Many oil and gas stocks were beaten up pretty badly last year and will be looking cheap if prices keep rallying.
Woodside Petroleum Ltd [ASX:WPL] gets a $500 million boost to earnings for every $10 jump in the price of oil (over the whole year) so it’s no wonder that stock is seeing a sharp bounce out of oversold levels. The immense spike in LNG prices in Asia and Europe is a shot in the arm for Woodside also.
Their assets are quite mature, and expectations are that they will be entering a decline in gas reserves by the middle of the decade and will need to find other sources to fill up their LNG infrastructure. However, the expected figures for 2022 and beyond make them look quite cheap.
Woodside may be turning a corner
Source: CQG Integrated Client
This is a quarterly chart of Woodside over the past 30 years. The price has been grinding lower since the crash in 2008. Notice how the COVID crash saw the price dip right down into the buy zone of the immense wave up from 2003–08?
It looks like the price of Woodside is heading back into the trading range of the past decade, and I don’t think it’s a stretch to target the point of control of the wave at $40 over the next few years. Woodies has been a poor investment for a long time but the two charts above are telling me that the worm may be turning.
Magnetic trading workshop
If you want to understand my trading style at a deeper level, be sure to sign up for my four-day ‘Magnetic Trading’ workshop which is running right now. The workshop started yesterday but if you sign up now you will have access to the first day’s workshop as well. It’s completely free and you will learn heaps about trading.
You will learn about all aspects of my trading model and how I use it to make money trading markets in a disciplined way.
We all want to make the big bucks, but if you don’t understand risk management you will end up in all sorts of trouble at some point. My method of trading involves mapping out how traders are positioned and taking advantage of their mistakes to get into powerful positions.
I use the tendency of prices to mean revert to create my initial targets and then I take part profit and adjust my stop-loss to a point where I will breakeven on the whole trade. From that point on I can relax and enjoy the ride.
If you want to learn how I do it, sign up to the workshop here.
For Money Weekend
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