AMEX Oil Index (XOI)

By: David Petch | Sat, Feb 19, 2005
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The XOI continues to advance as expected, however, the index has 3-4 weeks remaining prior to a top being put in. The upper Bollinger bands are riding the index, which is powering the trend. The lower 34 MA and 55 MA BB's are still declining, suggestive the index will continue to advance. Two former portions of the chart with red lines show how far apart the lower 34 MA BB and 55 MA BB are in time prior to each curling up. When the lower 34 MA BB (blue) curls up, then there is 2-3 weeks of further upside prior to a top. After the run is completed, the XOI is likely to be in a corrective mode for 6-10 months minimally. I am looking for early March to represent a top in the XOI. The short-term stochastics are at the top of the trend line and are now useless for indicating direction until a sharp break appears. The action of the Bollinger bands are going to be key for picking the top.

Figure 1

The index is well above the 50 day MA so at some point gravity will kick in. The full stochastics have the %K above the %D, implying the trend will continue. When the %K crosses underneath the %D, there could be a bit of a nasty correction. (100 points).

Figure 2

The weekly XOI is shown below. All three lower Bollinger bands curled down, confirming the huge advance the past few days. When the lower 55 MA BB (green) curls down and begins to curl up, that should indicate the end of the trend. I think the XOI has 1 month left, but it could go longer. The full stochastics below illustrate the %K and %D have topped out and are now useless at serving predictiveness, until the %K breaks beneath the %D (or the red support trend line drawn in place. The Fibonacci retracements of the entire advance from 2003 are shown on the right hand side. This kind of gives an idea as to what to expect when a correction in the oil stocks does occur. A decline to the 38.2% -50% level would be a typical correction (610-660).

Figure 3

The short-term Elliott Wave count or the XOI is shown below. The move up is thought to represent wave [iii].5.(1), but the alternate count could be valid (wave 5 runs into the 2-4 trend line in this instance. Normally wave 5 does not have this occur, but it can not be overlooked). This is the blow off stage of the XOI for wave (1), so expect the index to continue higher. My target for the past month has been around 880-900. That may be a ripe target, but only time will tell. There likely will be a 1-week pullback to 780-790 prior to a move up to complete wave [iii]. This count implies that there is at least 6-8 weeks left in the XOI.

Figure 4

The longer-term Elliott Wave count of the XOI is shown below. The index has punched above the long-standing channel in effect since 2003. This confirms the final stages of wave (1). The preferred count was already discussed in Figure 4 so there is not much more to say. The alternate count is shown in circled grey. The 2-4 trend line as mentioned previously would run into the fifth wave, something not allowed unless the fifth wave is a terminal impulse (ending diagonal or a wedge). For this reason, I have the preferred count shown. The correction that follows will likely see a decline to the Fib levels specified earlier in the article.

Figure 5

Has anyone noticed that certain gold stocks have continued to climb higher and higher, while the HUI has been in a corrective mode for the past 14 months? The large oil stocks are the ones most poised for a decline. The thing is though, peak oil is knocking on the door and the earning of the oil companies is cheap (p/e of 10). Given the market of Google and Yahoo etc. sporting p/e ratios of anywhere from 50-200 and someone saying oil stocks are expensive are absolutely nuts. The XOI is still undervalued, considering the way the market prices things..........this will change. The best way to profit form the oil shortages is to own smaller oil companies. The large stock companies are faced with declining inventories which will see many have their share prices reduced due to reduced cash flow from oil output......unless they can keep their reserves at today's levels.

Gold and silver will have end game dynamics like the 1970's. Even though Uranium and oil prices are going to go higher, the public will top these out before gold. In an inflationary environment, gold and silver preserve wealth. Since there will be a stampede into those stocks, the prices will shoot up higher than almost anyone can fathom today. Deflation will follow, and a balance of 50% gold and 50% cash (in a currency that will still be around) is recommended. Those buying gold now will not have to worry. Those buying gold around 2011-2012 I will feel pity for, because the price will fall sharply (but not as sharp as other assets). It will be an environment of what declines the least. Start saving now, because we will never in our lifetime ever have an opportunity to make money like this.

Have a good weekend.


 

David Petch

Author: David Petch

David Petch
TreasureChests.info

Treasure Chests is a market timing service specializing in value based position trading in the precious metals and equity markets, with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven to be very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested discovering more about how the strategies described above can enhance your wealth; please visit our web site at http://www.treasurechests.info.

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