Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Crude Oil and the US Dollar Under the Microscope

Commodities / Crude Oil Apr 20, 2007 - 07:43 PM GMT

By: Clif_Droke

Commodities

Oil and gas stocks had a great run to the upside following the correction low in earlier March. The Amex Oil Index (XOI) rallied nearly 180 points from its March low of 1,100 to its most recent high of 1,280. The Amex Natural Gas Index (XNG) was likewise bullish from March through late April and rallied from its correction trough of 440 to its latest high of 500.

How much energy is left in the oil/gas stock sector after this extraordinary rally? To answer that question we turn to the internal momentum indicator series known as OILMO.


Earlier last month I pointed out that the dominant interim momentum indicator for the oil stocks would turn up strongly into March and April and would most likely allow for some impressive gains to be made in the leading oil stocks. This turned out to be the case as 120-day oil stock internal momentum reversed in early March and roared ahead into April, allowing the XOI to rally. This week, however, witnessed the peaking of the 120-day oil stock momentum indicator (OILMO). Based on my rate of change calculations the peak has most likely been seen for 120-day momentum for some time.

It's somewhat sad that the most vigorous part of the rally is ending (or so it appears); however, the trend is still technically bullish and there appears to be enough lingering upward bias to not only keep the sector afloat near the recent highs for a while longer but also to allow a few stocks to make higher highs, especially those that are in a relative strength position versus the XOI and XNG indices. There may even be a few turnaround attempts among the lower-priced stocks, which we'll look at in coming reports.

Meanwhile, the 5-day, 10-day and 20-day price oscillators for the XNG index have all pulled back from an “overbought” extreme to a more normal reading. This takes some of the pressure off the gas stocks in the immediate term. Based on my rate of change calculations the 20-day price oscillator for the XNG will remain neutral to slightly oversold in the coming two weeks and this should allow XNG to maintain price support above its 30-day and 60-day moving averages.

On the oil front, a recent front page headline in the Financial Times newspaper proclaimed that “Iraq could have twice as much oil as estimated.” The report was based on a study from the consulting firm IHS and it estimated that Iraq's production could be increased from its current rate of less than 2m barrels a day to 4m b/d in about five years, if international investment begins to flow. This potential increase in oil reserves is only the tip of the iceberg as other “mystery” supplies of oil will be announced in the coming months. This will keep the oil price in check and will prevent the oil price-related economic crunch the bears have been expecting.

Dollar collapse?

Will the U.S. dollar experience a catastrophic collapse? Books and articles galore have been showered upon the public in which the writers purvey a coming dollar crash, a scenario which they say will destroy the U.S. economy as well as render the dollar a has-been among the major world currencies. Could such an event actually transpire in 2007?

Dollar bears point out that the dollar's weakness so far this year is due to a perceived deterioration in “U.S. economic fundamentals as well as a rise in implied inflation.” (Financial Times, April 20). A chief currency strategist at Danske Bank was quoted as saying, “Historically, a stagflationary environment has been bearish for the dollar.”

With monetary liquidity making a major rebound in the U.S. and the growth stock outlook looking most promising, capital inflows will end up sustaining the dollar and preventing a stagflation-type of environment that the gloom-and-doomers keep preaching. The simple fact remains that the dollar is still the world's reserve currency and as long as it maintains its top status it will be supported and kept from crashing. There will undoubtedly be periods of weakness, perhaps even extreme weakness, but such weakness won't be allowed to develop further into an outright collapse. The dollar has been likened by one observer to a cancer patient: the poor unfortunate is given chemotherapy to the point of death, then resuscitated with vitamins and allowed to restore white blood cell count for a while. Then back to the chemo and the inevitable decline in health that follows.

Same story with the dollar: strong dollar, weak dollar, strong dollar, weak dollar….it's all part of how the global financial system operates -- a fact which apparently escapes the dollar perma-bears. They don't seem to grasp that currency fluctuations are part and parcel of how the world's financial markets and economies are run; further, that periods of weakness, sometimes prolonged weakness, are inevitable.

The news media will also use the weak dollar as a proverbial “big stick” to beat the public on the head and scare them into selling stocks whenever it is needed, as was done in part during the late February/early March stock market correction. This is all part of the gamesmanship that keeps the average retail investor out of equities while the smart traders buy stocks on the cheap. Therefore it shouldn't be surprising if the recent talk surrounding the sub-prime mortgage market is soon supplanted by talk of an “imminent dollar collapse.” But as weak as the dollar is now, it won't be allowed to suffer a catastrophic decline.

The latest headline in the Financial Times has once again put the spotlight on the latest dollar weakness. Now it's time to watch for the dollar bears to come out in full force, growling all the way. The U.S. dollar index has fallen to a major benchmark low at the 82 level and is threatening to test the major long-term low at 80. Support should be encountered in the dollar somewhere between the 80 and 82 levels followed by a period of base building and eventually a reversal of the weakness. Already the dollar index has made a downside “channel buster” which normally implies exhaustion of the short-term downtrend. The dollar index has made three successive channel busters below the lower boundary of the downtrend channel that has been intact since January of this year. See chart below for details. A triple channel buster usually succeeds in at least ending the short-term downtrend.

Another point well worth considering is the relationship between the dollar and interest rates. In particular, the 3-month T-Bill Discount Rate can be used as a leading indicator for the direction of the dollar. As Carl Swenlin points out in his Decision Point web site: “ The direction of interest rates is an important element affecting the dollar. Rising rates give the dollar strength and falling rates bring weakness. Changes in interest rate trends tend to lead the dollar by about a year.” Note the dollar vs. interest rate chart below.

As you can clearly see, the T-Bill rate has been rising steadily since 2004. It's time for the dollar to respond by establishing support above its long-term base line and reversing its current weakness, an event that should be witnessed in the coming months.

 

By Clif Droke
www.clifdroke.com

Clif Droke is editor of the 3-times weekly Momentum Strategies Report which covers U.S. equities and forecasts individual stocks, short- and intermediate-term, using unique proprietary analytical methods and securities lending analysis.  He is also the author of numerous books, including most recently "Turnaround Trading & Investing."  For more information visit www.clifdroke.com


© 2005-2019 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