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Oil... The life blood... "The Prize"

Richard Russell
Dow Theory Letters
Aug 2, 2005

Extracted from the July 29, 2005 edition of Richard's Remarks

July 29, 2005 -What are the two most important questions of the day, the week, the month and the year? The two are -- the price of oil, and the interest rate on the bellwether 10 year T-note.

The life blood of the world economy today is oil. Oil is "The Prize." Yesterday I showed a daily chart of oil, and the daily chart showed a potential "head-and-shoulders" top, but I emphasize the word "potential." A top is not a top until it proves itself by breaking down.

Today I am showing a point & figure chart of oil, and here the boundaries are clear and decisive. On the P&F chart below oil most recently gave a bullish signal in July. That month saw oil rise to the 62 box. Next came a corrective row of 0s down to the 57 box. Most recently, oil has climbed back to the 60 box. It will take a rise to the 63 box to reconfirm the bullish trend of oil. For a bearish reversal, oil would have to decline to the 55 box.

This is what is so interesting -- the upside target or "count" for oil is now 83.

Gasoline is selling for anywhere from 2.60 to 3.00 here in San Diego. But that hasn't stopped the endless miles of cars on our freeways. Traffic in La Jolla is the worst I've ever seen it. Cars, SUVs, hot sports cars, trucks, they're everywhere. If gas over 2.60 has put the brakes on driving, I haven't seen any evidence of it here in San Diego.

But, I wonder, what if the P&F target comes to pass? What if oil goes over 70, then over 75, then over 80, and the price of gas rises to 3.75, 4.00 or even higher? Will that put a clamp on the US economy as millions of car people decide that they have to "cut back somewhere in their spending?"

I honestly don't have the answer, but it's a thought that's on my mind. Therefore, we'll keep our eye on "the prize," which is oil.

There are a number of puzzling things about the oil picture. One is the varied performances of the oil companies. Some are doing great, going to new highs -- APA, SUN. MRO, BR. But the biggies like XOM, RD, CVX, are lagging. What's with the biggies? Are they running out of reserves? Are their reserves in politically dangerous areas? It's really a puzzle. Oil at a record high and Exxon and Chevron lagging?

lots more follows for subscribers...

Richard Russell
Dow Theory Letters
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