7/12 Tuesday Special - Bounce in Oil?
A couple of short notes from Don and Six on the bounce in commodities seen today.
Thoughts from Don (@DonMiami3) - Chief Economist
Hope you’re all having a great Tuesday evening. First of all, you can now check out the new landing page at MacroEdge.net - we’ll have much more on that coming later in the month.
Next, a lot of attention in financial discussions today was drawn to the rise in oil and gasoline prices. The dollar sold off sharply on the weak CPI print and oil and gasoline rose sharply. Will it last?
OPEC+ seems to want the floor to be in that high-60s range, likely to stay above that floor in the interim as the economy continues to grind along (albeit, at a slower pace). Jet fuel demand is at a record high, with record short positioning against crude futures, I think consumers have a little more cash than the Fed thinks on the excess savings front. That, coupled with a weaker dollar, is a recipe for a bounce in oil.
People have seem to have forgotten how slow economic cycles are (years, not days) - which makes a whole lot of sense in the world of record 0DTE and options gambling.
For the Fed and for the consumer - the risk here on oil is to the upside - however, I personally see a limit to this upside with current headwinds. Energy inflation contributing to headline-CPI dropping lock a rock is no mas. Whether or not a 25bps hike this month stems further gains remains to be seen.
Opinions from (@SixFinance) - Head of Research
USO - I’m a hard pass on this one. I guess you could use it for short-term spec but I’ve been burnt in enough tickers with charts like this to not want to touch them. Not familiar with how the leverage on this product works enough to understand what’s causing the decay in the NAV. This one’s just not for me personally but you could speculate in it I guess, but there are better vehicles.
Note from Don: Watch $72 technical level here
UGA looks great. Sitting right at supply but the short term trend has been higher highs higher lows since may. I would feel good about using this to spec oil and I think I’m going to add some tomorrow. Closed on the exact high of the day. Technically looks really good. It’s coming into contact with top of supply zone with extremely bullish short term technicals. Closed the day on YTD high. Think PTJ would love this ticker. Low volume so liquidity is of some concern.
XOM I like it over 100. Could retest 100 to the downside to shake out weak longs and short-term speculators. Ideally, I’d wanna get it off a bounce off 100 but if oil becomes bullish without the SPR drain. EPS consensus 2024 forecast is $9.41 down from $14.77 trailing 12 months. My main concern is this trendline and today’s candle specifically. I like it over the 2014 cyclical top for the stock with bullish oil tailwinds.
CPG Trading at a 40% discount to book value. EPS is projected to double next year. 3.90 forward P/E. Long term debt on the company decreasing on a yearly basis substantially since 2019. Substantial revenue growth the last few years. This company is one I definitely want to research much more in detail because I like what I’ve seen thus far very much. Next technical level to watch for a response would be this short term level. Stock been mostly rangebound between $6 and $8 for the last 18 months with the exception of a steep bell curve move in June of 2022. I’d say this is a buy and hold here on initial fundamentals. For a trade, I’d take a position here, and add more on a break of this top trendline. For trading purposes, I’d cut the position on a trendline rejection here.
*No recommendations. MacroEdge Research on Substack is an aggregator of contributor pieces from both our Core and Contributor teams. Visit MacroEdge.net to learn more