Crude Oil, Natural Gas and AMEX Oil Index Stocks Analysis
Commodities / Crude Oil Feb 25, 2011 - 07:23 AM GMTBy: David_Petch
The daily chart of oil is shown below, with oil shooting well above all three Bollinger bands, suggestive that oil will consolidate for at least 7-10 days before trending higher. Normally, when prices run well above upper Bollinger bands, a consolidation is required, or a pullback is in order. Given the fact that all three lower Bollinger bands are positioned in close proximity to each other and the lower 55 MA Bollinger band curled lower, oil prices are highly likely to remain above $90/barrel and eventually rise above $100/barrel before summer's end. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances.
The %K in stochastic 1 appears to have curled up and if the trend continues, then upside should drift into late March/early April. As mentioned, the spike above all three upper Bollinger bands is likely to have a consolidation period before advancing higher....geopolitical tensions of course could stretch this, which would make the collapse price much more drastic...remember the Bollinger band rule...it always resorts to the mean and if anything stretches outside of them, then they will spend a consolidation time between them again. If the opposing Bollinger bands are spread out (not the case here) then a dramatic reversal generally occurs. If opposing Bollinger band are in close proximity to each other (as per below), then further upside potential exists after the short-term overbought condition wears out.
Figure 1
The weekly chart of oil is shown below, with all three upper Bollinger bands in close proximity to each other. Oil prices spiked above all three upper Bollinger bands, indicating that a short-term pullback is likely. Lower Bollinger bands are in close proximity to each other and fanned out, suggestive that a break in oil prices above $100/barrel is not likely to occur until later this summer/early fall. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 1 and 3. Positioning of the %K in stochastics 2 and 3 suggest that sideways to upward price action in oil is likely to persist into late fall.
Figure 2
The monthly chart of oil is shown below, with upper 34 and 55 MA Bollinger bands still drifting well above the current price in close proximity to each other, suggestive that the the consolidation period is still not yet complete. The lower 55 AM Bollinger band appears to be curling over, suggestive that further upside potential lies ahead in the not too distant future. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Extrapolation of the %K trend in stochastic 1 strongly suggests that the price of oil will remain sideways up between December 2011 and June 2012. It is impossible to pin any sort of tight date for when a top is put in place because a lot can happen between now and then. However, there will be volatility along the way as this is “Climbing the Wall of Worry”.
Figure 3
Natural Gas
The daily chart of natural gas is shown below, with upper 34 and 55 MA Bollinger bands still rising, suggestive that a bottom has not yet been put in place. When both the upper 34 and 55 MA Bollinger bands curl down, a bottom will likely have been put in place. Lower Bollinger bands are in close proximity to the current price, indicating that further downside is probable. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Positioning of the %K in stochastics 2 and 3 suggest that a bottom is not due until at least mid to late March.
Figure 4
The weekly chart of natural gas is shown below, with lower 21 and 34 MA Bollinger bands in close proximity to each other. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Given the fact the %K in stochastics 1 and 2 curled down and the %K in stochastic 3 is still trending lower, a mid-term bottom in natural gas prices in not likely due for another 4-6 months. Playing the HNU.TO or equivalent long natural gas funds could be profitable by late summer...but not now.
Figure 5
The monthly chart of natural gas is shown below, with upper and lower 34 and 55 MA Bollinger bands still far away from the current price. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 (marginally above in 2) and beneath the %D in 3. The monthly chart suggests further grinding in the price of natural gas...prices of natural gas are nearly ½ that of Europe, so expect a big jump in price as this decade continues, especially when Peak Oil really begins to sink in.
Figure 6
AMEX Oil Index
The daily chart of the XOI is shown below, with upper 21 and 34 MA Bollinger bands riding the index higher, while the upper 55 MA Bollinger band continues to rise well above it...this suggests a short-term top is strongly looming. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 3 and beneath the %D in 2. There is a negative divergence between stochastics and the XOI, suggestive that a 200-300 point decline is probable in the not too distant future. This ties into commentary about the S&P 500 index trading between 1050-1400 over the course of the next 12-18 months....the correction coming will be 15-20%, while the 40-50% correction is likely to initiate in early 2013 through 2014. At that particular point in time, owning cash will be good, because at the bottom, there will be many deals.
Figure 7
The weekly chart of the XOI is shown below, with all three upper Bollinger bands riding the index...any brief pause will indicate a topping process. The lower 34 MA Bollinger band just curled up, so when the lower 55 MA Bollinger band curls up, a top will most likely have been put in place. There is a 6-8 week lag between these events, so expect 2-3 weeks of weakness in the XOI, followed by a likely rebound to at or near current levels. This topping process could take 12 months... Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. Based upon positioning of the %K in stochastic 3, a longer-term top is not likely due until the June 2011 time frame.
Figure 8
The monthly chart of the XOI is shown below, with lower 34 and 55 AM Bollinger bands still well beneath the index, while the lower 21 MA Bollinger band just curled down. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Generally for a market crash to occur, monthly charts will have a setup pattern of extreme overbought conditions, as per 2008. At present, there is no such setup...notice the %K above the %D in stochastic 1. We are likely to have 1-2 months of a correction coming up, but a long-term top is not due until sometime in 2012, based upon positioning of the %K in stochastic 1. Those in dividend paying energy stocks...prices are going to oscillate somewhat, but based upon this chart, not by much (15-20%). The really big correction is not due until 2013-2014, which will see extreme hardships as governments really begin to lay people off. When this occurs, then asset deflation of real estate could really cause a bottom.
Figure 9
The monthly chart of the XOI is shown below, with the thought path the XOI followed shown in green (added way back in November 2009). I have not done any sort of projections yet, since I am waiting for wave B to complete. It does appear however, that wave B is completing a zigzag pattern. I will be waiting for confirmation of a top so that I can add some downward price projections. A pullback to the 1150 area SHOULD be expected (this could happen within 4-6 weeks before putting in a bottom), so base trading decisions on this, depending upon how one is playing the market (really short-term or longer-term). The stock market is not “As the Crow Flies” (I wrote an article on the web by the same title many years ago for anyone interested in Googling it)..rather it meanders like a brook in the countryside. Many will say the stock market is going to hell...it will, but again, not until early 2013 after the post December 21st, post survival party occurs ☺. The next 12-18 months is going to be a traders paradise...those wishing to go short...be careful as the Captain suggested because one should be in front of a computer for this at all times.
Figure 10
That is all for today...back tomorrow with an update of the US Dollar Index. This is an important update, since it is following a path not too many expect (The expected pattern has been unfolding now for the past few months as described previously)
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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