Steve; RE:" BigOil prospects ? "
>>The XOI/OIX.X - BigOil sector appears to be near the top of its DownTrend channel. I'm assuming that much of their recent apparent strength is a result of: USD devaluation; its effects on CL98Z - CrudeOil Futures; and, the sector's over-sold state.>>
>Could you explain the first sentence a little more? Does this mean we've hit the bottom on oil, and we go up slowly from here, or....something else ?>
I apologize for being unclear, Steve; the context was a speculation of what effect the BigOil sector might have in the very short term upon the major market indices, such as the DJIA-30 and SPX/OEX.
Long Term Prospects
The OIX.X - BigOil Index, which, IMHO is a bit more focused than the XOI.X (because the XOI contains DD), shows a giant industrial cycle on its weekly chart. The ~230 level appears to be a cyclical turning point, with a confirmed Hammer apparent. That being said, I have no idea as to whether BigOil's long-term cycle will have any great extent, say - the ability to reach ~280 within three months - as I am ignorant of the fundamentals outlook in this industry, so can offer only my opinions. Note that BigOil pays good dividends, and could be considered defensive investments, not unlike utilities, in this market environment.
Shorter Term Effects on the DOW & SPX/OEX
In the shorter term, the OIX.X daily chart shows an abrupt spurt upwards from ~230, including a break-away gap. I expect BigOil to retrace (back) here, somewhat - simply a result of profit taking, if nothing more. XON and CHV are the bellwethers here; people who bought them (when the OIX was near ~230) are looking at the same thing on the chart as you and I are: it's nearing the old tops, where traders are looking for an elegant exit. I suppose we could call any selling now, based on what folks see on their charts - as a technical correction, rather than something fundamental.
In the context of the major market indices (that we are trading) Steve, I did not think that we could depend upon BigOil as a driving or sustaining upward force; ie., as "a leg to stand on" like RLX - Retail; DRG - Drugz; MSH - Techs; or, NF.X - Financials.
The OSX Sector
The OSX.X is to the OIX.X as AMAT is to INTC. That is to say, when there is growth in these industries, the OSX gains more (as in a "leveraged" play) than does the OIX, as a result of kapital spending. When there is growth in the semis, the semi-equips likewise tend to grow in a leveraged kind of way, as a result of kapital spending. There has been little or no kapital spending for 18 months. Indeed, we are now even questioning whether consumer spending - the sole remaining engine of the American economy now - will continue. The most recent issue of The Economist, for example, speculates on the negative wealth effect, saying that a 40% decline (from 17-JUL) in equity values would result in a 4% to 5% reduction in American consumer spending for a duration of two years.
I have yet to see any increases in kapital spending, and resulting revenue growth, apparent in the OSX.X - OilService Sector. All I see, Steve, is a lot of OSX and semi-equip companies approaching book value.
CL98Z - Crude Oil Futures -- Commodity or Currency ?
It is unfortunate that we do not (yet) have a futures market for "memory chips" commodities (^_^) because these commodity prices are so useful for the investor - and trader.
Why did CL98Z go up on 31-AUG, (when the stock market crashed), and break out of its relentless DownTrend ? Well, the USDollar tanked w.r.t. the DEM and Yen, and commodities are traded in dollar-denominations, for the most part. Going long OIL (and GOLD) was akin to shorting the USD versus the Yen and DEM. Nothing has fundamentally changed, that I can see: the world is still awash in oil; national treasuries still dump gold reserves; and although it may be less expensive for Japan and Germany to buy oil, there is not a growing demand evident for increasing (capacity utilization) industrial production beyond what it is now.
Commodity Futures in general, and CL98Z - Crude Oil Futures in particular, are notorious for over-reacting to every piece of news, shot fired or stockpile report. This character is even more pronounced when oil and oil equities are so relentlessly beaten down, where hopeful investors and momentum traders are looking for anything that will blip the bourse.
In the long run, Steve - I believe there is an enormous oil surplus capacity in the world; though stockpiles can be drawn down, wells capped, in an effort to keep cash flows intact. And there is little or no reason to believe that demand for energy will grow beyond normal, seasonal cycles - because we are the only country who remain net consumers, and everyone else in the world is trying to sell their oil to us.
IMHO, CrudeOil is no longer acting like a commodity, rather - it is now behaving as a proxy for something perceived to have currency.
-Steve |
