Radar Screen Flashing Red Overbought on Multiple=If you will search on our posts, you will see we suggested buying the USO (that’s the most popular ETF tracking crude oil), several of the largest gold miners, and lastly we have repeatedly warned of a toppy market. Now you might say we have been lucky, that the Mideast democracy contagion has worked in our favor and that is true to some degree.  More importantly we were alerted to all of these trades by the very oversold technical nature of the stocks and ETFs. We routinely scan hundreds of prices using technical indicators on the TradeStation radar platform looking for overbought and oversold stochastic and RSI states.  We have developed unique approaches using off the shelf software to alert us and visually display the kind of information that would be impossible for the average human to track.

Just knowing that a sector or stock is overbought or oversold is hardly enough knowledge to consistently make money on.  These extended states of fear and greed can persist for enormous lengths of time.  Bernard Baruch is credited with saying “The market can stay irrational far longer than you can stay solvent.”  But being able to scan above the market and look for storm clouds like this is an invaluable tool.  It’s like having an eye in the sky and is aptly named “Radar” by the TradeStation people.  In the case of the latest Mideast events, oil, gold, and even the market all entered this period short term oversold using Stochastics.  As I like to say, this is like a stack of straw waiting for a match.  Stay tuned.  This is going to get interesting.

In the long run none of this makes any difference in the price of oil because whatever entity ultimately takes over the from the messy birth of democracy, they will need oil.  The world will always use oil and it is getting harder and harder to find.  Democracy or totalitarian state- they will sell the world oil.  In the short term though there could be major interruptions and consequences.