Printer Friendly

eMail Article

July 09, 2008

Oil Stocks Will Continue To Under Perform The Oil ETF
by Chris Vermeulen

Oil stocks will under perform crude oil and the oil etf for the next several years - but Energy Juniors will outperform both.

The market is now setting up for a great entry point into junior oil Stocks!

When it comes to morbid fascination, this chart takes the Cake!

Chart 1 - Multi-Year ratio chart of Crude vs. Oil stocks

What we have here is an EXPLOSIVELY BULLISH ratio chart of West Texas Crude versus Major Oil stocks.

In technical parlance, this chart has recently broken out of a multi-year reverse Head and Shoulders pattern (or Cup & Saucer depending on your interpretation) painting a target of 0.14 at the least.

Here's why the above Chart is so Significant:

Chart 2- Dow (red) versus Oil Stocks/Crude Oil chart (blue)

Chart-2 Superimposes the above ratio against the Dow Industrials. In order to demonstrate the relationship, the ratio has been reversed to shows the Oil Stocks versus Crude (blue line).

What is imminently clear is that when Oil Stocks have underperformed against Crude Oil, the general direction of the stock market has been lower!

This in and of itself is no secret as we have all been frustrated by the lack of progress in commodity stocks versus the underlying commodities. But what is perhaps foreboding is that Chart-1 is telling us the relative underperformance is fated to go on for much longer - probably years. And by inference the Dow will remain in an extended Secular Bear Market. Confirming what we have been saying that returns on equities would be low if not negative for the next 5-10 years!

The highlight:

Now that we've painted the doom and gloom, there is some light at the end of the tunnel.

Chart-1 also shows the RSI is extended and the ratio is overbought. A pullback to the neckline (blue line) may soon begin and Oil equities will outperform Crude -- the Dow will also rebound. We are now approaching an excellent entry point into Oil equities.

Please note we do not think that Oil Stocks will show negative performance over the next 5-10 years but we do think they will lag Crude Oil itself. Superior returns can be captured through smaller energy explorers and producers that will benefit from market trends as well as company specific news such as promising drill results...this is the place to get set and the time is now!

Chris Vermeulen
TheGoldAndOilGuy.com

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. For 6 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return. Reach Chris at: Chris@theGoildAndOilGuy.com

This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Copyright 2008 © Chris Vermeulen

Image rendition and html coding Copyright © 2000-2008 SafeHaven.com

« BullionVault.com -- Buy gold online - quickly, safely and at low prices »
« Honest Money: A History of U.S. Gold & Silver Currency -- by Douglas V. Gnazzo »

« Opinions expressed at SafeHaven are those of the individual authors and do not necessarily represent the opinion of SafeHaven or its management. Articles are available via RSS/XML. Please visit RSSHelp for instructions. »