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Oil and Equities: Using Macro, Technical, and Fundamental Analysis to Uncover Trading Opportunities

Tim Duchesneau

Tim Duchesneau

Co-Portfolio Manager & Investment Analyst

We believe that oil prices will be rangebound creating trading opportunities. We invest in specific oil companies through our Global Value, Global Growth, and Hedge Fund Strategies. We can also take tactical macro positions in our Argent Asset Allocation Strategies.

The Co-Portfolio Manager on our Global Growth strategy, Tim Duchesneau, leads our technical analysis efforts. He follows the oil market in depth to understand movements and help uncover opportunities. 

This year we have been profitable on stock selection within the oil space using a combination of macro, fundamental, and technical analysis to uncover opportunities. By combining these analysis methods, we can uncover opportunities others may not see if they just use either the macro, technical, or fundamental perspectives. We incorporate this “360 degree” coverage for all asset classes, albeit with most asset classes we take a longer-term view than we do with oil.

The Analysis

Below is the Ichimoku Cloud Technical Study overlaid on the heavily traded June Oil Futures contract. This study is used to forecast price action. Here is a high-level view on how this chart helped us and where we are today:

  • Technicals: In early January the price of oil moved above the Tenkan (blue line, a short term directional technical indicator).  To us, this signaled a reversal in price action from Bearish to Bullish.
  • Macro & Fundamentals: In January, high quality oil names were trading at attractive prices. Oil was at $45/barrel, below major breakeven points for Russia and Saudi Arabia and many onshore U.S. companies. Oil inventory data was leaning bullish as well. 
  • Other firms: Many firms we track upgraded their oil forecasts in March. This should support the positive trend for now. Technicals affirm this view. 
  • Our Actions: We entered (what are now profitable) positions in January. We are more likely to trim from here than to add.

Chart below shows the price of oil overlaid with the Ichimoku Cloud Technical Study for the past one year time period.

More Details:

The Ichimoku Cloud Study comprises five indicators. This includes Senkou Span A, Senkou Span B, Tenkan, Kijun, and Chikou.

Senkou Span A (purple line) and Senkou Span B (yellow line) show the projected movement of the oil price (white bars) 26 and 52 days forward, respectively.  Three other plots, Tenkan (blue line), Kijun (pink line), and Chikou (red line), are used as direction, support/resistance lines, and signal confirmation, respectively.

The Tenkan line represents the average of the highest high and the lowest low of oil prices over 9 bars (days in this case). To us, the Tenkan is the most valuable line as oil tends to trend upwards when the price is above the Tenkan line and tends to trend downwards when the price is below the Tenkan line for tradable periods of time. Due to this tendency, when the oil price moves back above the line it tends to stay above the line and signals a reversal. This happened in early January. This, combined with attractive prices on certain oil stocks and other favorable fundamentals gave us conviction to buy certain oil-related names.

The Kijun line is calculated similarly to the Tenkan, however it uses a longer time period (in this case 26 days). This can offer confirmation to the Tenkan about the direction of the trend.

In March, when Span A crossed above Span B it was even more confirmation that oil price action was in a strong, positive trend. Not coincidentally, this is where most oil analysts began upgrading their oil forecasts. 

From here, we may look to trim our tactical oil positions prior to the OPEC meeting in June, but exact timing will depend on the macro, technical, and fundamental data.

DISCLOSURE: Past performance is no guarantee of future results. Charts presented in this article are not indicative of the past or future performance of any Argent Wealth Management strategy. This article has been distributed for informational purposes only and is not a recommendation or offer of any particular security or investment strategy. Information contained herein has been obtained from sources believed to be reliable. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Argent Wealth Management. 

Argent Wealth Management is registered with the Securities and Exchange Commission (SEC) as a Registered Investment Advisor © 2018 Argent Wealth Management, LLC. All rights reserved.

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