Don’t Let Oil’s Price Action Fool You

BY JEFF CLARK, EDITOR, MARKET MINUTE

Memorial Day weekend is just two weeks away. And you know what that means…

Gas prices are going higher.

It’s the annual gouging of the American consumer. It happens just about every year – starting in late April and going into Memorial Day. Oil prices rise. Gas prices rise. And we empty our pockets in order to fill up our tanks.

It didn’t start so early this year. Indeed, the price of oil actually fell during the first week of May. But don’t let that fool you. The annual gas gouging will happen.

And if the chart is any indication, the price of oil looks ready to make a big move higher. Take a look…

The price of oil fell hard in early April – dropping from a high of just over $71 per barrel to the recent low near $57. Fears of a trade war causing a global economic slowdown had traders hitting the “sell” button on oil.

But that action created positive divergence on the chart. In other words, as the price of oil fell to a lower low, the momentum indicators at the bottom of the chart made higher lows. This sort of positive divergence is often an early warning sign of an impending rally.

Even after last week’s bounce, the price of oil is still down about 15% since early April. It’s down more than 20% from the January high. And now we’re starting the summertime driving season.

Bearish traders might argue that we have a supply glut. OPEC is opening up its spigots. And President Donald Trump’s “drill, baby, drill” policies will keep the oil price low.

All of that is true. But the seasonal tendency is for oil to rally this time of year.

When you combine that seasonal factor with the positive divergence on the chart, the odds favor the bulls on this trade. So, get ready to be gouged at the pump over the next few weeks…

It looks to me like the price of oil is headed higher in May – just like a rubber band snaps back when you stretch it too far.

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That’s Just What Happened With Natural Gas in Late April

Commodity prices (and stocks) are highly seasonal in general… not just crude oil.

Previously, it was natural gas’s turn to go on a bull run in April. For whatever reason, it often rallies that time of year: For 8 out of the past 10 years, natural gas finished April higher than where it started the month – with an average gain of 4.4%.

Now, another tendency natural gas has is to trade very erratically. On Wall Street, “nat gas” is known as the widow maker trade for breaking “the rules” of fundamental and technical analysis… leaving traders feeling like they’re fending off death.

And this April was no exception, in that the seasonal rally showed up at the very last minute.

By April 25, natural gas was trading nearly 30% below its 50-day moving average line. That’s an extreme move, as I wrote in my Market Minute free newsletter at the time. The proverbial rubber band got quite stretched below the line:

This is what sets the stage for a “snap-back rally.”

The risk/reward looked good, too, in that a move back up to the 50-day moving average would yield a 30% gain… Then if that rally continued to where it was trading last month, it would gain 50%…

Meanwhile, if natural gas kept falling instead, it was likely to find support near the mid-November low at about $2.80. That would be a loss of less than 10%.

And traders who took that bet were rewarded when nat gas snapped higher as April wound down and the calendar flipped to May:

Again, though, crude oil is the better bet now. The nat gas trade has reverted to being more of a coin flip… back to being “the widow maker,” you might say.

It’s a good example, though, of extreme moves that can make traders serious cash as the price reverts back to normal.

There’s a particular way to do it that I’m really favoring right now, when volatility is riding high throughout the markets. But really, you can use it any time.

It’s an income-producing strategy: more about generating cash to pay the bills than speculating on a big rally.

Don’t get me wrong – I love to speculate on a rally like the ones I wrote about today – but the risk/reward has to be right.

And a good 50% of the trades I personally do are intended to generate income that funds my more speculative ideas. It’s an approach I took a lot in Jeff Clark Trader during 2022 and 2023; not so much in 2024… But 2025 is a whole different story.

I think we’re going to stay in an inflated volatility environment for at least the next several months, quite possibly the next couple of years. As such, you can watch this to see what I have in mind to put the odds on your side in 2025. It comes with a special offer to try Jeff Clark Trader, as I’ve got a report waiting for you there on how to deploy this income-producing strategy in your account.

Best regards and good trading,

Jeff Clark
Editor, Market Minute