Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Where's Crude Oil Going Next? Boom or Bust

Commodities / Crude Oil Oct 17, 2009 - 05:10 PM GMT

By: Oakshire_Financial


Best Financial Markets Analysis ArticleEveryone's been complaining about the cost of living as the economic crunch really takes hold. Money's getting tighter, everything's getting more expensive and the government's "inflation" numbers don't seem to be totally accurate or honest.

But fortunately for our pocketbooks, oil hasn't yet gone on the sort of giddy rise we've seen in the stock market (and gold too, for that matter).

Oil is nowhere near to making a new high, as you can see by the weekly chart below. Instead it's stabilized at $70, right around its long and short moving averages.

Like all prices these days, we can bet on one thing: it won't stay stable for long. From here, oil could rebound spectacularly and threaten to return to its old highs around $130 -- or it could collapse to well below $50 again.

So which way is it going to go?

No one can say for sure because none of us have a totally accurate crystal ball – but let's examine a bit more data to help us make a decision.

The Case For An Oil Bull Or Bear

What could drive the price of oil itself? As the world's most heavily traded (and therefore politicized) commodity, there are probably a near-infinite number of factors in play.

However, they all break down to supply and demand.

On the bullish side, some parties feel optimistic that a true economic recovery is in the works and therefore we'll see a rise in energy demand and oil prices. China's demand for oil seems relentless, by way of example.

There's also the peak oil argument (dwindling supply) and the never-ending political tension in the Middle East too.

On the bearish side, there are reports of oil surpluses and over-supply and the economic recovery doesn't really seem to be shaping up the way the cheerleaders are claiming.

A further ingredient in the mix is the fact that oil is priced in U.S. dollars. If the dollar weakens further, oil will rise to reflect that weakness. But if the dollar shows strength when measured against other paper currencies, we'll see more of a flatline in the oil price despite other bullish factors (which has in fact happened).

As we stated in this column two weeks ago, the 'death of the dollar' is overdone at this time. Everyone's a bit too eager to dance on the dollar's grave right now, which means it will probably surprise the herd (yet again) and hold up in the face of adversity.

So what does this mean for oil? Well, let's look at the performance of the major oil companies as to where the price might go...

Are Oil Companies Leading Indicators Or False Beacons?

Oil itself has flatlined for now, but as we can see, the price of a basket of oil companies as been anything but flat.

The CBOE Oil index (OIX) is a price-weighted index composed of 15 large and widely-held integrated oil companies. The largest four components are APA (Apache), OXY (Occidental Petroleum), XOM (ExxonMobil) and CVX (ChevronTexaco).

The OIX has been in a definite uptrend lately – it's rebounded strongly every time it's touched its 50 day moving average (the blue line).

It appears to be temporarily overbought if we go by the stochastics indicator.

But at the same time its uptrend has been confirmed by the repeated fact that previous resistance has become support. Look at the 580-600 area (green), the 620-630 area (red) and now the 660-670 area (blue).

If the uptrend is still intact, we have two possible areas of support:

a) That 660-670 area where resistance could provide support, and
b) The 50 day moving average which will probably make it to 640 level by the time the price retraces

The safest place to buy the OIX is b), but a more aggressive trader could try buying at a) with a tight stop.
Of course, neither of these ideas will work if the OIX uptrend is well and truly over. That's the risk we take as traders and investors.

N.B. If you think the OIX bull market is over, selling now is probably the way to go as the stochastics indicator is showing a very high level and that's often proven to be a low-risk shorting point.

Equity Plays on Oil Price Volatility

There are several ways you can play the oil market without actually trading oil futures or the OIX index itself.

You could buy (or short) any of the constituent companies in the OIX itself such as APA (Apache), OXY (Occidental Petroleum), XOM (ExxonMobil) and CVX (ChevronTexaco).

Here's a comparison of these four most heavily-weighted stocks from the OIX:

There's a very strong variation in performance here, and it seems that OXY is clearly the strongest stock of the bunch with only Apache demonstrating any real rivalry here.

So if you don't like the idea of investing in (or shorting) stocks directly due to company-specific factors that could cause unpleasant surprises, there are now some ETFs (Exchange Traded Funds) available.

Some are neutral, some are biased toward the long side, and some are biased toward the short side. You can just pick a fund that reflects your views on oil...

   1. Goldman Sachs Crude Oil Total Return ETN (OIL)
   2. MacroShares Oil Down ETF (DOY)
   3. MacroShares Oil Up ETF (UOY)
   4. PowerShares DB Crude Oil Double Long ETN (DXO)
   5. PowerShares DB Crude Oil Double Short ETN (DTO)
   6. PowerShares DB Crude Oil Long ETN (OLO)
   7. PowerShares DB Crude Oil Short ETN (SZO)
   8. PowerShares DB Oil Fund (DBO)
   9. ProShares Ultra DJ-AIG Crude Oil ETF (UCO)
  10. ProShares UltraShort DJ-AIG Crude Oil ETF (SCO)
  11. United States 12 Month Oil Fund (USL)
  12. United States Heating Oil Fund (UHN)
  13. United States Oil Fund (USO)

Some of these are so new they don't have charts of any practical use yet.

But here's a comparison of three relatively neutral oil ETFs (red is OLO, green is USO, blue is OIL if that's not clear from the key on the chart) to help you make a choice:

OLO is clearly the best performer of the bunch here. But the choice is up to you.

Good investing,

Nick Thomas
Analyst, Oxbury Research

Nick Thomas is a seasoned veteran of technical analysis and has mastered all intra-day trading in stocks, options, futures and forex. He prefers to scout investments as one asset class of many and shapes his investment strategies accordingly. He writes extensively about offshore banking and offshore tax havens and is active in the career development field of independent investment research.

Oxbury Research originally formed as an underground investment club, Oxbury Publishing is comprised of a wide variety of Wall Street professionals - from equity analysts to futures floor traders – all independent thinkers and all capital market veterans.

© 2009 Copyright Oxbury Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Oxbury Research Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules