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Oil Market update - $80 here we come...Clive Maund January 16th, 2006 We now have the confirmation that we were expecting that a new intermediate uptrend is beginning in oil and oil stocks, with oil closing above $64 in the past couple of days, and the OIX oil stocks index breaking above 550 just over a week ago, signalling completion of an intermediate base in oil stocks. The outlook will remain positive even if both slip back below these respective levels in coming days or over the next week or two. A number of stocks in the oil and gas sector had big moves up late last week, notably Canwest Pete (CWPC), up 28% on Friday and Mexco Energy (MXC), up nearly 40% in the past couple of days, and there are several more lining up to make big moves, probably next week, which we will be taking a look at shortly on www.clivemaund.com.
 On the 6-month chart for West Texas Light Crude, we can see how oil formed an intermediate base from late November’s low through the low in mid-late December, with the gap move up at the start of the year really signalling completion of the base and the start of a new intermediate uptrend, although we had wanted to see it break above $64 to be sure it was getting clear of the base area. Since the start of the year oil has essentially been consolidating following the sharp move up from late December, and this consolidation, during which the price has gently risen further, has allowed the moving averages to swing into more bullish alignment and to start to catch up with the price. Notice how, with good old-fashioned predictability, oil reacted back to the vicinity of its 200-day moving average only to turn up again - yes, the same old patterns do keep repeating themselves. Oil is rather overbought on a short-term basis, as shown by the RSI and MACD indicators at the top and bottom of the chart, which is why it is only risen slowly since the start of the year, and although this MAY lead to a minor short-term reaction, the probability is that it will continue on up from here.
 The 3-year chart for oil reveals a fine, orderly long-term uptrend. On this chart we can see how the reaction late last year brought oil back down into classic buying territory - at its long-term uptrend line and close to its rising 200-day moving average. It is also clear that the sharp move up at the start of this year signals the start of a new intermediate uptrend which could quite easily take the price to the $80 area before it’s done.
 Turning now to the 6-month OIX oil stocks index chart, we can see that oil stocks broke out upside from their intermediate base area, when the index broke above 550 just over a week ago. The index continued to rise over the past week, and got close to challenging the September highs later in the week. Having succeeded in staying above the 550 level, the index is considered to have begun a new intermediate uptrend which will not be invalidated even if it dips back below 550 short-term. Certainly, the patterns in many oil stocks are suggesting that we will go higher from here. Thus, suitable oil stocks should continue to be held - and bought.
 The 3-year chart for the OIX oil index shows the continuing strong long-term uptrend in oil stocks. The recent break above 550 signalled completion of the intermediate base area above the long-term uptrend line and rising 200-day moving average. Oil stocks are already well on their way and this index should hit the top line of the channel before this new intermediate uptrend is finished. A number of oil stocks made big moves up late last week, as already mentioned earlier, and there are others which look poised to do likewise in the near future. We will be looking at some of these on www.clivemaund.com shortly.
Clive Maund |
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