ChartWatch: Crude Oil, Woodside Energy, Santos, & Co.

For me, easily the most interesting chart pattern from the last 24 hours occurred in crude oil. This followed the announcement by OPEC+ that it had postponed its weekend meeting.I discuss this, and the fundamentals of the crude oil market as seen by Morgan Stanley, in another article you may wish to read.

In today's ChartWatch, I'll investigate Wednesday's big move in West Texas Intermediate Crude Oil ("WTI"). I also discuss several ASX energy companies exposed to this move including:

• Woodside Energy (ASX: WDS)

• Santos (ASX: STO)

• Karoon Energy (ASX: KAR)

• Ampol (ASX: ALD)

• MMA Offshore (ASX: MRM)

• Worley (ASX: WOR)

What does a big shadow foreshadow?

The super-interesting chart pattern I referred to above is Wednesday's candle on WTI, which featured a massive downward pointing shadow. A "shadow", or "wick" as it's also known, forms when a candle's high price is greater than its open and/or its close (i.e., an upward pointing shadow), or when its low price is less than its open and/or its close (that is, a downward pointing shadow).

Shadows represent price points which coincide with short term excess demand or short term excess supply

Shadows display the range of prices in a trading session that weren’t sustained into the close. So, an upward shadow equals a fall from the high of the session and a downward shadow equals a rally from the low of the session.

If we assume (as we should) that declines in price occur due to excess supply, then an upward shadow is a great indicator of where supply is lurking in the market. Similarly, price increases occur due to excess demand, so lower shadows can point to a security that has experienced excess demand.

There's no guarantee that excess demand/supply will be there next time the price tests the range defined by a shadow. But the longer the shadow, the clearer it becomes that there is a greater imbalance in demand and supply at that point. And by extension, longer shadows point to potentially significant turning points in the price action.

One of the biggest tips I can give you in technical analysis is: Ignore long shadows at your own peril!

The WTI chart printed an important bullish candle signal on Wednesday

Looking at the WTI chart, the long lower shadow on Wednesday's candle is significant within the recent price action with respect to its magnitude and location. The low of the shadow coincides with the 16 November trough at $72.37. When points of demand confirm each other, it builds the case for a potential turnaround in price.

My tip is as long as $72.37 holds, there's a very good chance WTI can bash out a meaningful low in the mid-US$70's. You'll know this potential reversal has legs if WTI can close above my Dynamic Support/Resistance Ribbons. When the price is below these ribbons, as it is now, they tend to offer resistance. A close above US$80/barrel is the key point to watch.

Woodside, Santos, & Co. might be at a turning point…

It follows from the above analysis, that if WTI is about to thrash out a bottom, this could be the catalyst for Woodside, Santos, & Co. to potentially do the same. Looking at the charts below, investors holding these stocks have been smashed in September and October, so a turnaround would be a great relief.

Woodside Energy (ASX: WDS)

Woodside Energy would love WTI to thrash out a meaningful low

Even if this is the low in WTI, there’s little I can do about it given Woodside’s clearly defined short term downtrend (light pink zone) and rolling-over long term trend (orange zone). I’d need to see at least a return to higher peaks and higher troughs which would indicate supply is again being removed and demand is again building, respectively. A bunch of white candles here also would also be a great start.

Santos (ASX: STO)

The Santos chart is a reminder of the headaches involved in investing in commodity-related stocks

Ditto for Santos. I am a trend follower, so I don’t try to pick bottoms. I need to see signs demand is moving back in and displacing supply before I can get involved. This may be about to happen, but until it does, I’ll remain on the side-lines on this one. 

Karoon Energy (ASX: KAR)

Karoon Energy hasn’t done any better than its larger ASX counterparts

Double ditto for Karoon Energy. Either my consistency in abstaining from calling a buy on these last three charts will frustrate you, or it will demonstrate that having a plan and sticking to it is super important!

I’d like to see a reversal in the short term trend ribbon, higher peaks and higher troughs, and a close back above the long term downtrend before I can grow confident about Karoon’s turnaround prospects.

Ampol (ASX: ALD)

The Ampol chart suggests refiners have few issues with lower crude prices 

As I like to do, I’ll finish on the three most prospective ASX energy sector charts. The first is Ampol, and a cursory glance at my trend ribbons should tell you there’s something good going on here. 

Green on the screen! The light green short term trend ribbon and dark green long term trend indicate shorter term traders and longer term investors are both looking to accumulate the stock. The price action is attractive - higher peaks and higher troughs, and candles are predominantly white. 

All stuff which is typical of excess demand for a company's shares. Why is there excess demand for Ampol’s shares? You’d have to ask the investors buying more than they’re selling, but my tip is they like the stock.

MMA Offshore (ASX: MRM)

Selling picks and shovels in a mining boom is always a good idea, just look at MRM Offshore’s chart

One of the oldest sayings in investing is buy companies selling picks and shovels to miners in a mining boom. Looking at the MMA Offshore chart, this looks like it’s been a winning strategy.

I can’t fault this chart. I love the trends, I love the price action, and I love the candles. If you think I just started saying this now, it’s not the case. If you’ve followed me in the media or on Twitter/X, you’d know I've been touting this trend since February 2022 - it’s just been so consistent.

Worley (ASX: WOR)

Worley is another oil and gas services provider bucking the weaker trend in the ASX energy sector

The Worley chart looks very similar to the MRM Offshore chart, but looking at the short term trend ribbon, it appears to lack some confidence relatively speaking. The long term trend looks very much intact, but I think Worley is suffering from supply emanating from the clearly defined zone of supply between $17.50 and $18.00. It’s hard to get too excited about this one until it can log some strong price action and candles within this zone.