There's Nothing Crude About These Markov Signals

Crude oil prices have been hammered recently - hitting their lowest levels since May. The culprit once again is the COVID-19 pandemic and specifically the recent rise in Delta-variant infections among non-vaccinated people. The concern is that the rise in cases will limit fuel consumption because once again fewer people will travel. And with more businesses delaying fully reopening their offices, the thinking is a significant number of people will continue working from home.

So, where do we go from here? At Excalibur Pro, we offer a number of tools to help investors get their arms around trends. And one of the unique tools that we offer is one we call Regime Change - it uses the Markov process to help determine when an instrument's momentum is changing.

Below is a Markov chart of Brent crude oil. What's interesting to note is what happens when State 1 crosses State 2. When State 1 remains significantly higher than State 2 (after the two have crossed), you see sustained price gains. When State 1 crosses below State 2, you see price declines. Currently, State 1 has crossed below State 2 on Aug. 2 - but it appears to have bottomed and is possibly heading toward another cross. If that trend continues, you should see modest price gains or prices stabilizing.