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Commodity Forecasts for Crude Oil and the AMEX Oil Stocks Index

Commodities / Crude Oil Aug 21, 2009 - 06:36 AM GMT

By: David_Petch

Commodities

Best Financial Markets Analysis ArticleOil - The daily chart of the oil is shown below, with all three upper Bollinger bands riding above the index, while the lower 21 MA BB is rising to meet the index. The lower 34 and 55 MA BB’s are in close proximity to each other and the 34 MA BB should begin to rise if a moderate leg down were to occur. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 2 and 3. Based upon positioning of the %K in stochastic 2, there is no clear indication that the oil has completed its topping formation just yet.


Figure 1

Figure 1 copy.gif

The weekly chart of oil is shown below, with the lower 21 and 34 MA Bollinger bands continuing to rise upwards to the current price. When upper and lower 21 and 34 MA BB’s contract towards each other, it is an indication of a significant reduction in volatility which thereby sets the stage for another major move, whether it be to the upside or downside. Positioning of the 21 and 34 MA BB suggest the potential for another 1-3 weeks of sideways action before topping out. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 2 and 3. In order for a top to become “qualified” on the weekly chart, the %K must curl over and fall beneath the %D…this event is at least 2-4 weeks out, so my initial estimation for a true top being put in place might be rather conservative.

Figure 2

Figure 2 copy.gif

The monthly chart of the oil is shown below, with all three upper Bollinger bands drifting above the 2008 highs, indicating the significant overhead resistance…there is at least another 12-18 months of consolidation before oil can even consider advancing above $100/barrel. Lower 21 and 34 MA BB’s are well beneath the index, indicating a low was put in place back in 2008. The lower 21 MA BB is starting to curl up, suggestive that the lower 34 MA BB will also follow suit…I anticipate a 2-3 year consolidation at least for oil between $55-90/barrel before any sort of breakout occurs and again, this is based upon the huge spread between upper and lower Bollinger bands. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Based upon stochastics, it again confirms suspicions about how long the consolidation in oil really takes.

Figure 3

Figure 3 copy.gif

AMEX Oil Index

The daily chart of the XOI is shown below and has a similar Bollinger band setup to oil…all upper BB’s well above the current price, the lower 21 MA BB is at or near the index while the lower 34 and 55 MA BB’s are in close proximity to each other, suggestive that more time is required to set the stage for a reduction in volatility in order to really “trigger” the next decline. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 2 and 3. Until the %K in stochastic 2 falls beneath the %D, there is no indication that a top has been put in place. For those playing oil stocks, I will again mention that the easy money was made back in March and now the risk simply outweighs the reward. It is also important to point out that the S&P 500 index has a similar pattern to the XOI, so this chart provides a window into what is going on there too.

Figure 4

Figure 4 copy.gif

The weekly chart of the XOI is shown below, with upper 21 and 34 MA Bollinger bands riding above the index, while lower 21 and 34 MA BB’s are also approaching. The lower 55 MA BB requires another 1-3 weeks of time to continue rising up to a point where there is enough reduction in market volatility to trigger the next leg to the upside or downside (looking for downside coming up). Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 2 and 3. The %K in stochastic 2 is still rising and pointing up, so until it curls down sharply and approaches falling beneath the %D a top has not yet been put in place. Again, I want to stress how everything is linked to how the USD performs over the course of the next 1-3 weeks. As long as the USD continues to base at present levels before theoretically heading higher, everything else will remain in a topping process.

Figure 5

Figure 5 copy.gif

The monthly chart of the XOI is shown below, with lower 21 and 34 MA Bollinger bands falling beneath the index, suggestive that 2008 lows could potentially hold (the XOI may just go sideways for longer than most anticipate). Upper Bollinger bands are still riding well above the former 2008 highs, indicating strong upper resistance. All three lower BB’s are going to reach a focal point sometime over the course of the next 12-18 months, which will represent a good time to establish positions in companies that make money. During this current market environment, if a company is not making money or is far from it, avoid them like the plaque because investment capital is going to become even tighter in the coming 12-24 months. Once the stock markets bottom, economies typically bottom 12-18 months after…so 2011-2012 is when the decession is over (Note: I did not intend a spelling error there). Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Notice how the 12-18 month time frame fits with extrapolation of the %K trends below to indicate a bottom was put in place?

Figure 6

Figure 6 copy.gif

The mid-term Elliott Wave count of the XOI is shown below, with the former thought patterns forming denoted in green. Obviously the last decline did not pan out and the XOI shot to the upside. If the XOI tops out in 2-4 weeks, then the labeling scheme I chose is appropriate. Any further extensions in time and I will have to rework the count. One thing about using Elliott Wave analysis or NeoWave (what I use) is to never fit the count to what you think is going to happen, rather, try to work the count based upon the surrounding wave structures. I like to include the former charts and technical’s because it paints a much better picture for how and where the market is with respect to volatility (Bollinger band analysis) and trending patterns (positioning of %K relative to %D) on daily, weekly and monthly charts. Throw in good wave analysis and it provides a much better picture.

Figure 7

Figure 7 copy.gif

The long-term Elliott Wave count of the XOI is shown below, with the thought pattern forming shown in green. Another 2-4 weeks out should see the XOI decline in a similar pattern to what is shown below to retest the 2008 lows. Does this happen…who knows, but based upon the wave structure thus far, that is what it is implying.

Figure 8

Figure 8 copy.gif

Well, that is all for today…I will update two different indices tomorrow morning. Have a great day.

By David Petch

http://www.treasurechests.info

I generally try to write at least one editorial per week, although typically not as long as this one. At www.treasurechests.info , once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces).

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Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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