“I’m not just bullish on oil because oil is going up. On the up moves in oil, we’ve seen rising volume and breaking down volatility.”
–Hedgeye CEO Keith McCullough
Oil prices have been bouncing around lately on speculation about whether the 14-member country cartel OPEC can control its supply of oil and boost prices. For investors, that may be just a distraction. Prevailing macro trends suggest that Oil’s volatility, or the CBOE Crude Oil Volatility Index ETF (OVX) will continue to break down (-11% in the past 3 months).
That’s a bullish signal for oil prices and oil-related stocks.
As long as crude’s volatility stays below $37 (it’s currently $33.84), the signal on oil should remain bullish. “Oil’s volatility is now comfortably below the trend. And the trend is your friend provided that oil volatility is below 37,” says McCullough in the video above.
What to Buy
The Oil & Gas Exploration and Production ETF (XOP) is towards the low end of its risk range, $40.09 - $42.81. So buy it.
