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Crude Oil and Amex Oil Stocks Index Analysis

Commodities / Crude Oil Apr 17, 2009 - 01:13 AM GMT

By: David_Petch

Commodities Diamond Rated - Best Financial Markets Analysis ArticleOil continues to remain above $50/barrel, while oil stocks continue to trace out a pattern similar to the S&P 500 Index. Analysis today focuses on West Texas Intermediate Crude Oil and the AMEX Oil Index.


West Texas Intermediate Crude Oil

The daily chart of oil is shown below, with upper Bollinger bands riding above the upper index. Lower Bollinger bands have the 21 MA BB still rising, alongside the 34 and 55 MA BB’s. The lower 21 MA BB should kiss the one of the bars for oil in the not too distant future, which will eventually cause the price of oil to top out. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in stochastics 1 and 2, while fully above 3. Based upon the spread between the %K and the %D, the price of oil could continue to grind higher over the course of the next 2-3 months before declining…based upon the daily chart.

Figure 1

Figure 1 copy.gif

The weekly chart of oil is shown below, with the lower 34 and 55 MA Bollinger bands at extremely oversold conditions (which are starting to rise since the last update), indicating how severe the recent decline was. Although the lows for oil have been put in place, it could take 2-3 years to consolidate the price of oil below $100/barrel before any higher prices occur…this is going to take some time. The upper and lower 21 MA BB’s are quickly approaching the price of oil, thereby creating a potentially narrow trading range between them…this will cause a breakout to the upside or downside (likely to the upside based upon full stochastics). Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2. Based upon the sharp trajectory of the %K in stochastic 1, it appears oil has an opportunity to have continuous support in the pricing mechanism until sometime between July and October 2009. The weekly chart indicates an extremely oversold condition not seen in severity at all for the data presented below. Based upon this, oil could potentially climb to $60-70/barrel later this summer if the pricing mechanism is not manipulated and follows the trajectory path laid out with full stochastics. I will update the Horizon Beta funds later on tonight to review opportunities based upon observations presented (the HOU.TO has remained a speculative buy for the past few months).

Figure 2

Figure 2 copy.gif

The monthly chart of oil is shown below, with the lower 21 and 34 MA Bollinger bands falling beneath the index, suggestive that a bottom has been put in place. Although a bottom has been put in place, it is highly probable that oil will consolidate between the former high of $147/barrel and the lows around $35/barrel before making a break to higher prices in 2-3 years time. A 2-3 year consolidation in the price of oil is supported by the lower 55 month MA Bollinger band at $14.70/barrel…it will take 2-3 years for upper and lower Bollinger bands to compress enough to trigger the next wave higher in the price of oil (above $147/barrel). 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 a rally in oil continuing to last anywhere from 3-6 months, it will have little impact on turning the %K higher in stochastics 2 and 3. As such, the stochastic patterns also suggest a period of consolidation lasting for 2-3 years. All of this hints at higher prices for any transported items. This allows 2-3 years for people to get gardens ready, along with bikes, etc. because anyone not prepared for rising prices after the period of debt liquidation is complete will be…”left in the dark”.

Figure 3

AMEX Oil Index

The daily chart of the XOI is shown below, with the lower 55 MA Bollinger band set to touch the index, which would likely set up the opportunity for a correction before continuing to grind sideways to higher. Full stochastics 1, 2 and 3 are shown below in order of descent, with eth %K above the %D in stochastics 2 and 3. Given the positioning of the %K in stochastic 2, the %K in 1 could easily make another attempt at rising above the %D.

Figure 4

Figure 4 copy.gif

The weekly chart of the XOI is shown below, with the lower 55 week MA Bollinger band still declining, suggestive that a bottom has not yet been put in place (it may not be an Orthodox bottom (absolute bottom), but likely a higher low. When the lower 55 MA BB does turn higher, it will indicate that the correction could extend 6-8 months beyond the orthodox bottom. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2. Based upon stochastic 1, there is an upward trend still in place for the XOI, which could find support with rising oil prices, alongside a rising stock market. The %K in stochastic 3 is at an oversold condition and could continue to remain at low levels for some time.

Figure 5

Figure 5 copy.gif

The monthly chart of the XOI is shown below, with the lower 21 and 34 MA Bollinger bands falling beneath the index, while upper Bollinger bands continue to drift sideways near the upper portion of the range. Before the XOI can launch into a new bull market phase, the upper and lower Bollinger bands must be within close proximity to each other to indicate that market volatility has been eliminated. This pattern suggests the correction of the former top has 2-3 years to correct at a minimum to end the corrective pattern. There will be many sharp rallies and corrections during this phase, which will require timely entry and exit to book profits. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. The daily and weekly charts for the XOI are bullish, but the monthly chart suggests the move up is merely a bounce within a longer term corrective sequence 2-3 years). When the corrective phase subsequent to the 2003-2008 rally completes, the next move will blow through the former highs. The best way to play the energy sector is outlined in the Captains analysis for how to play natural gas.

Figure 6

Figure 6 copy.gif

The mid-term Elliott Wave count of the XOI is shown below, with the thought pattern forming shown in green from a few weeks ago. Although the pattern has not been absolutely precise, it has followed the general trend not too badly. As per the S&P 500 Index, there is the potential for an initial decline, followed by a move to higher levels. The present pattern is at a critical juncture, and with present stochastic levels on the daily chart, it is probable that a 100 point decline occurs before moving higher. If the XOI takes out 920 over the course of the next 3-5 days, the decline phase possibility will have been negated and is likely to grind higher.

Figure 7

Figure 7 copy.gif

The long-term Elliott Wave count of the XOI is shown below, with the thought pattern forming denoted in green. If a decline occurs as per Figure 7, the XOI pattern is likely to head higher into the July to September time frame. A bottom in the XOI is expected to occur around the same point in time as the broad stock market indices as either a retest of the former lows of October 2008 or a higher low.

Figure 8

Figure 8 copy.gif

Well, today’s update encapsulates the oil market and associated stocks. I will update the Horizon beta funds we follow later on tonight.

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).

With the above being just one example of how we go about identifying value for investors, if this is the kind of analysis you are looking for we invite you to visit our site and discover more about how our service can further aid in achieving your financial goals. In this regard, whether it's top down macro-analysis designed to assist in opinion shaping and investment policy, or analysis on specific opportunities in the precious metals and energy sectors believed to possess exceptional value, like mindedly at Treasure Chests we in turn strive to provide the best value possible. So again, pay us a visit and discover why a small investment on your part could pay you handsome rewards in the not too distant future.

And of course if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line . We very much enjoy hearing from you on these items.

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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