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WTI chart with the 3-month candles looks bearish

If WTI bulls are lucky, WTI ‘rallies’ one more time to test former resistance/support at 51.40. If not, we should be inspecting price action at trend line soon.


WTI has shown it’s resistance, XLE pointed the way

WTI daily chart with 3M chart inset

WTI daily chart with 3M chart inset |


In my opinion, I think that WTI falling was a matter of time. I have very high regard for charts that show clearly demonstrated positive correlation. I don’t fully understand the dynamics in each setup but seeing that a positive correlation type of relationship exists is good enough for my own trading. Even better if the relationship goes back long enough.

From time to time, some kind of divergence will pop up but unless there is a truly structural change, those divergence should eventually ‘close’.

It is like this for WTI. Last week I wrote this story ‘XLE ‘buyer’s remorse’, loses post-Trump election gains‘. The bearish divergence between XLE and WTI is very clear as their positive correlation. XLE ‘buyer’s remorse’ means it regretted buying. For what reason I don’t know. But I think that people who invest in Oil and Gas should know something about the price of crude oil.

There is a distinct bearish divergence between XLE (Energy Select Sector SPDR  ETF) and WTI. XLE has completely reversed it’s post-Trump election gains and is now in the red.

XLE (top), USOIL (bottom); XLE loses all gains since 08 November 2016

XLE (top), USOIL (bottom); XLE loses all gains since 08 November 2016

In this chart, their positive correlation.

XLE, USOIL (WTI) overlay

XLE, USOIL (WTI) overlay


Why correlation, divergence overlooked

I know many individual traders don’t believe much in correlation. They are too quick to brush it off especially when they cannot see immediate price action. They think correlations don’t work (or they don’t want to deal with something that does not deliver immediate results) and therefore divergence don’t mean anything.

I have two simple analogies to share:

  • If you see dark clouds, will it rain?
  • If you find termites in the house, will the house collapse?

It will rain when it rains. Timing is impossible to predict. The house will collapse in it’s own time but warning is served. Ignore at your own risk.  Note:  of course it also won’t happen right away.

It is a patience game that individuals who only want immediate gratification cannot bear to participate; market does leave clues.


Coming back to the top chart with the 3M inset in the bottom right corner. There should be some ups and downs on the way but with that kind of chart pattern, I suspect that we should see some more correction in WTI this year.

WTI 3 month time frame, 2004 - present

WTI 3 month time frame, 2004 – present

Note again: Markets can be fickle. That 3M candle for Q2 2017 can flip to black, to red to black n times before it closes at the end of the last session in June. As a requirement for a bearish WTI to work out, that trend line support in the daily time frame does play a part. As a second requirement, bearish WTI requires price to stay below resistance (red dotted line).


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