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Time To Go Long WTI, If Only By Proxy

It is no secret that, since I first started contributing here, I have been somewhat bearish on the price of oil, or more specifically on West Texas Intermediate (WTI). That doesn’t mean that I don’t see long term opportunity in U.S. based oil stocks; I do, but the very thing that makes them attractive, the boom in oil production in the U.S. also, by definition, limits the upside to the price of oil, all else being equal. That seemingly contradictory stance has been vindicated, I guess, as WTI futures have dropped below $100, even as the energy sector has outperformed the broader market.

As with anything related to markets, though, my opinion is only valid until I change it, and I have…at least for now.

Now that WTI crude futures have dropped to around the $97 level it is beginning to look like we have found a bottom. Usually, when my overall view of a market changes it is based on a combination of factors, rather than just one thing, and this case is no exception. Three things have caused my change of heart; oil prices are at a clearly discernible level of support, economic conditions in the U.S. are improving, and there is a chance, albeit a slight one, that a significant regulatory change could take place that would give U.S. oil prices a serious boost. Let’s look at one at a time.

First, the chart point. I have drawn a simple trend line on this 2 year weekly chart from Stockcharts.com showing the upward trend in the lows…

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