Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Gold – “Make Me Feel Good…Tell Me Anything” - 25th Sept 18
Sector Rotation Continues. Bullish for Stocks - 25th Sept 18
Whose Trillion is it Anyway? US Federal Government Shocker! - 25th Sept 18
Focus on the Stock Market’s Price Action and Ignore the Failed Hindenburg Omen - 25th Sept 18
5 Problems All Restaurant Owners Will Face - 25th Sept 18
Gold Price Trend Forecast 2018 - Video - 25th Sept 18
How the US Dollar Penalizes Emerging Asia - 24th Sep18
Stock Market Macro/Macro View: Waves and Cycles Part II - 24th Sep18
DJIA Makes New High  - 24th Sep18
Gold Price Trend Forecast 2018 - 24th Sep18
The Stock Market Has Been Exceptionally Strong this September. What’s Next for Q4 2018 - 24th Sep18
Gold / US Dollar Inverse Trend Relationship Video - 23rd Sep 18
US and Global Stocks, Commodities, Precious Metals and the ‘Anti-USD’ Trade - 23rd Sep 18
Gerald Celente Warns Fed May Bring Down the Economy, Crash Markets - 23rd Sep 18
Top 3 Side Jobs for Day Traders - 23rd Sep 18
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB

Market Oracle FREE Newsletter

Trading Any Market

Is Crude Oil a Step Behind or Ahead of the Oil Index?

Commodities / Crude Oil Sep 30, 2013 - 06:33 PM GMT

By: Nadia_Simmons

Commodities

Tensions in the Middle East have always had an impact on everyday life around the world through their effect on the price of oil. During the last month we saw this impact very clearly. At the beginning of September, the price of light crude dropped as fears of U.S. military action against Syria faded. In the following days, crude oil declined as Libya's production recovered to nearly 40% of pre-war capacity. Higher crude oil output in Iraq was an additional bearish factor, which pushed the price lower. In the previous week, investors watched closely all the US-Iran news. On Friday, the price of oil fell as tensions eased between the United States and Iran after the Obama-Rouhani talks.


What impact did these events have on the price of light crude?

Looking at the chart of crude oil from today's point of view, we can conclude that September was a hard month for oil bulls. After the June-August rally, which resulted in a new 17-month high, the situation in the oil market deteriorated. The price of light crude dropped from the September high at $110.70 to a new monthly low at $102.20 per barrel. With this move, crude oil has lost nearly 5% so far this month and declined for a third straight week.

And what did happen with the oil stocks at the same time? How does the relationship between light crude and the oil stocks look like? Could lower prices of crude oil have any implications for the oil index? Before we try to answer these questions, let's take a look at the NYSE Arca Oil Index (XOI) charts to find out what the current situation in the oil stock market is (charts courtesy of http://stockcharts.com).

We begin with the long-term chart and almost immediately see that the situation has improved.

The XOI not only broke above the July top, but it also broke above the May 2011 high. If the buyers hold the oil stock index above 1,400 today, this will be the highest monthly close since June 2008.

Additionally, the XOI is still above the previously-broken long-term declining resistance line based on the 2008 and 2011 highs and the breakout hasn't been invalidated. The oil stock index also remains in the range of the rising trend channel.

Taking these observations into account, the situation is still bullish.

To see this more clearly, let's zoom in on our picture and move on to the weekly chart.

Looking at the above chart, we see that the oil stock index remains above the July peak (in terms of weekly closing prices), but the breakout is unconfirmed at the moment. It's worth noting that the XOI closed higher for a fourth week and is still close to the May top. On top of that, when we take into account weekly closing prices, we notice that this is the highest weekly close since June 2008.

Taking the above into account, we should carefully keep an eye on oil stocks. The proximity of the above resistance level may encourage oil bears to go short and trigger a correction. In this case, the first support would be around 1,400.

Please note that even if the buyers do not give up and manage to push the XOI higher, further increases may be halted by the upper line of the rising wedge (currently close to 1,450).

The medium-term uptrend isn't currently threatened, and the situation remains bullish.

Once we know the current situation in the medium-term, let's focus on the relationship between light crude and the oil stocks.

When we take a look at the above charts and compare price action in both cases, we clearly see that oil stocks were stronger in the previous week once again. They closed higher for a fourth week and remain above the July peak (in terms of weekly closing prices). What happened with the price of crude oil at the same time? Light crude declined and closed lower for a third week. Additionally, it dropped to a new September bottom on Wednesday, which clearly shows its weakness in relation to the oil stocks.

Now, let's turn to the daily chart.

As you see on the above chart, the situation didn't change much in the previous week. After a breakout above the declining resistance/support line based on the May and July highs, the oil stock index remains in the consolidation. At this point we should consider two scenarios. If the buyers manage to push the XOI above the September high, we will likely see another upward move, which may result in a breakout above the May high.

On the other hand, this strong resistance may encourage sellers to go short. In this case, we may see a corrective move to at least 1,400. If the oil index drops below this level, we could see further declines .

Please note that the nearest support is the bottom of the current consolidation (the 1,400 level). The second one is the previously-broken declining resistance/support line (around 1,396), the next one the 50-day moving average (currently at 1,389.56). Going even lower, we have a support zone based on the August 27 and August 30 lows (1,361-1,364), and a further one based on the August 21 bottom and the 61.8% retracement level (1,338-1,339).

Before we summarize, let's comment on the relationship between the WTI and the XOI in the short term. This time, we see a negative divergence between the price action in light crude and the oil stocks. Although we saw declines on Monday (in both cases), the rest of the week looked completely different. We've been seeing a consolidation in oil stock in the recent days and the NYSE Arca Oil Index is trading between the September 18 low and the September high. Meanwhile, in the case of crude oil we saw further deterioration which resulted in a new monthly low.

Summing up, from the long- and medium-term perspectives the outlook for oil stocks remains bullish and the uptrend is not threatened at the moment. The oil index closed higher for a fourth week and, what's most interesting, this was its highest weekly close since June 2008. Additionally, if the buyers manage to hold the XOI above 1,400, it will be the highest monthly close since June 2008. Meanwhile, crude oil not only lost its major allies (the 50-day moving average and the short-term rising support line), but it also declined below the medium-term rising support line. Additionally, the breakdown is confirmed and light crude has hit its new monthly low. Taking into account the relationship between light crude and the oil stock index in the previous week, we can conclude that the oil stocks remain stronger in relation to crude oil.

Thank you.

If you'd like to stay up-to-date with our latest free commentaries regarding gold, silver and related markets, please sign up today.

Nadia Simmons

Sunshine Profits‘ Contributing Author

Gold Trading Tools and Analysis - SunshineProfits.com

* * * * *

 

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2018 http://www.MarketOracle.co.uk - 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