Bitcoin’s price action is compressing in a rare “double pennant” … how our experts, Luke Lango and Charlie Shrem suggest you play it … another commodities trader calling for $200 oil

Bitcoin looks like it’s about to make a huge move.

But will it be up or down?

To explain what’s happening, let’s jump straight to our crypto experts, Luke Lango and Charlie Shrem. From their Saturday update of Crypto Investor Network:

Look at the trading action in Bitcoin over the past three weeks.

We’ve seen this “coiling” action of higher highs converging with lower lows. In technical analysis terms, this is called a “pennant”. Bitcoin is forming a classic pennant right now.

Eventually, most pennants completely converge (Bitcoin is on track to do so before April). When they do, something big happens.

Source: TradingView

Luke and Charlie explain that the direction of “something big” usually parallels the direction of the asset’s trading action before the pennant formed.

But that’s where things get murky.

***Two opposite pennants are forming at once

Back to the update:

If you look at the Bitcoin chart on a multi-month window, Bitcoin clearly entered this pennant in a pretty nasty downtrend.

Bitcoin prices dropped from ~$70,000 to below $40,000 and then entered this pennant. On that time horizon, then, it looks like this is a bearish pennant – meaning that once the pennant converges, you could see a breakdown in Bitcoin prices to $30,000.

Source: TradingView

On the other hand, if you zoom out the time frame, it looks like a bullish pennant is forming.

Going back to 2020, Bitcoin is on a multi-year uptrend.

That would imply this is a bullish pennant, meaning that once the pennant converges, Bitcoin could soar back to $70,000.

Source: TradingView

As much as we’d love to have a crystal ball here, we don’t.

So, let’s look at the variables that will influence which way this breaks, and then see how Luke and Charlie recommend investors play it.

***The macro forces driving bitcoin right now

Before we get into those details, for newer Digest readers, Luke and Charlie are our crypto experts who helm Crypto Investor Network. This is one of InvestorPlace’s cryptocurrency advisory services, which finds tomorrow’s most explosive altcoins.

So, why the focus on bitcoin rather than altcoins? Because for now at least, altcoins are having trouble trading independently from bitcoin.

As Luke and Charlie have noted in recent weeks, when bitcoin rises, altcoins rise. When bitcoin falls, altcoins fall.

This correlation has largely been true for years. But it has become especially pronounced in 2022, and even more so since the Russo-Ukrainian war emerged.

You can see the parallels below, as we look at bitcoin’s price compared to CIX, which is the crypto index (it holds bitcoin, ethereum, ripple, bitcoin cash and litecoin).

So, evaluating bitcoin is a helpful proxy for looking at the broad sector.

Returning to the issue of the direction of a potential breakout, Luke and Charlie point out that bitcoin is currently being treated as a risk asset.

Unfortunately, what that means is that any time investors get nervous, risk assets like bitcoin are the first to be sold.

So, to get clues about bitcoin’s upcoming direction, we need to analyze the source of today’s anxiety, and then how likely it is to continue weighing on markets.

This points us to the Russia/Ukraine war and COVID lockdowns in China.

Back to Luke and Charlie:

If the war in Ukraine deescalates and China’s Covid-19 problems prove ephemeral, risk appetites will improve, and Bitcoin could stage a big move back to $70,000.

If the war in Ukraine escalates and China’s Covid-19 problem deteriorates, risk appetites will fall, and Bitcoin could plunge to $30,000.

It all depends on Ukraine and China.

Unfortunately, those situations are black boxes.

The Ukraine situation is being dictated by a madman in Putin, and predicting the behavior of a madman is impossible.

Meanwhile, China is saying one thing (Covid-19 lockdowns won’t impact the economy), yet doing another (they’re still locking down cities).

The Russia/Ukraine conflict is all over the headlines, but you might not be as familiar with the COVID situation in China.

From The Telegraph:

China is facing its largest Covid-19 outbreak since the virus first emerged in Wuhan in December 2019. On Monday, the north eastern city of Jilin placed 4.5 million people under lockdown for three days in order to curb the spread of the virus.

The entire Jilin province, that Jilin city belongs to, last week placed a travel ban on its 24 million residents – the first time a whole province was sealed off since China cut off access to Hubei province and Wuhan in January 2020 in hopes it would prevent the virus’ spread.

China also locked down the city of Shenyang, which has a population of nine million, on Monday night due to an outbreak. Health authorities reported more than 4,000 new locally transmitted infections across the country, the majority in Jilin province, which is in Shenyang’s vicinity.

In the opposite corner of the country, the high-tech metropolis of Shenzhen was placed on a five-day lockdown earlier this month. Its 12.5 million people were ordered to undergo three rounds of Covid testing, while subway and bus services were suspended…

Elsewhere in China, tens of millions of people are under different forms of lockdown.

***So, what do Luke and Charlie recommend?

Ultimately, they believe Russia/Ukraine and China will resolve positively for the markets. That said, investors are jittery, and any bad news could send markets lower.

Given this, here’s their recommendation:

Patience is our best friend these days. Let’s wait and see how this pennant plays out.

If we start to see the breakout emerge because of positive geopolitical developments, we have a whole list of cryptos we’re ready to buy.

But there’s no need to rush in now. Stay patient.

Wait for confirmation of a breakout. And then go “all-in”.

We’ll bring you updates from Luke and Charlie as this situation unfolds. But get your dry powder ready and be ready to move if this breaks north.

***Meanwhile, another sign that oil can go much higher, even from here

In Monday’s Digest, we highlighted a scenario in which oil goes to $170 per barrel.

This is based on the oil majors (Exxon, BP, Shell, etc.) leaving Russia, as well as the latest news that even the oilfield services companies are now packing up shop (Halliburton, Schlumberger, and Baker Hughes).

This sudden vacancy threatens to impact Russian oil production. Especially as we look further out in time.

Well, according to one commodities expert, we won’t have to look too far out – we could be seeing $200 oil here in 2022.

From Bloomberg:

Commodities trader Pierre Andurand sees a path for crude oil to get to $200 by the end of the year as historically tight markets struggle to ramp up production and replace lost supply from Russia.

He estimates some 4 million barrels per day have been taken out of circulation as a result of Russia’s invasion of Ukraine and subsequent restrictions on doing business with the Putin government.

While releasing oil from strategic petroleum reserves could help boost supply in the short-term, it’s likely that the energy industry won’t be able to increase capacity to fully offset the lost barrels.

We should note that Andurand isn’t a no-name analyst. He’s made himself and his clients huge returns through spot-on commodities trades at the right time.

For example, he bet against oil as it was plummeting into negative territory back in 2022 because traders ran out of physical storage space for oil.

Today, he sees the opposite problem developing. He thinks market participants could have trouble delivering physical oil, even though spot prices are soaring.

So, how does Andurand see this playing out?

Back to Andurand, as quoted in Bloomberg:

“I think, like close to $200 a barrel — so much higher than today.

I feel like there’s no demand destruction at $110 a barrel and we’ll have to go significantly higher before demand can go down by enough.

But that’s also assuming there’s no government mandate and some kind of confinement, where let’s say two days a month, we are not doing anything.

…if there’s no government mandate, then I think that around $200 oil will be enough to bring demand to balance the market.”

***How might you play this?

Earlier this month, our macro expert Eric Fry led his Speculator subscribers to a 100% gain on a portion of their oil trade.

Out of respect for subscribers, I won’t get into those details. (You can click here to learn more as a subscriber. Also, you have access to this trade as an Omnia subscriber.)

Instead, let’s check in on the three oil trades we put on here in the Digest back on February 19, 2021.

The first was the Energy Select Sector SPDR Fund ETF (XLE) that holds oil heavyweights including Exxon, Chevron, ConocoPhillips, Schlumberger, Occidental, and Valero to name a few. This was our “broad sector” play.

The second was Diamondback Energy (FANG), which is a Texas-based energy exploration company. This was more of a concentrated, returns-focused trade.

And the third was Exxon (XOM), the massive multinational oil and gas company. This was our cash-flow trade, since Exxon pays a massive dividend.

As I write, the three trades are up, respectively, 79%, 122%, and 70%.

I’ll include that Digest readers who acted on this trade have also received three dividend payments from Exxon that have averaged a 5.3% dividend yield.

Based on Eric’s extensive research, as well as what we’re seeing from analysts like Andurand, we believe we’re still well below oil’s eventual peak price. In other words, there’s juice left in these trades. Just be ready for volatility.

We’ll keep monitoring oil, as well as bitcoin, and will update you here in the Digest.

Have a good evening,

Jeff Remsburg