In the last review on Feb. 27, I made an odd call that the oil price could weaken in the next
few months, perhaps to $95 bl., but that industry stocks could do well on the promise of
faster global economic growth and a more stable uptrend in the price of natural gas. This
turned out to be a good and profitable guess.
It could be time to be a bit more edgy about the oil situation. The price of oil is entering a
seasonal period of consolidation / weakness that could last well into July before the normal
final seasonal push higher commences. Not surprisingly then, the uptrend in the WTI crude
price which began early this year has been broken. $WTIC Daily Chart
There is a primary trend channel of $18 per bl. high to low that has been in play since mid -
2009. The current low for the trend channel is now about $95 - 96. Because there is more
supply on hand than I thought there might be now, and because we are moving into a more
challenging period on a seasonal basis, it might not be unreasonable to check and see if
oil can hold the longer term uptrend over the next month or two. Sound overwrought? Well
if you trade oil it might not be at all if there is continuing inventory overhang.
The bottom panel of the chart shows the relative strength of the $XOI oil composite against
the SP 500 Spyder. You can see the stark positive reversal here but note that the relative
strength of the group is just turning a little wobbly after a nice run against the broader market.
Could be the group is setting up to cool off.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!