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April 09, 2006

Update of the AMEX Oil Index
by David Petch

The lower Bollinger bands are drifting sideways, suggestive the consolidation process is still underway before wave [3] commences sometime around June. Full stochastics have the %K above the %D rising to the upper portion of the channel. The XOI likely has another 2-3 weeks of further upside before declining in the final leg of wave [2].

Figure 1

Red lines on the right-hand side represent Fibonacci price projections based upon uptrending wave price action projected of the subsequent lows. The lines look to be many, but focus on the areas of line overlaps that for Fibonacci clusters. These represent important support/resistance levels. The next important resistance level is 1111 and the XOI closed right at this level today. I still think the XOI is going to 1180-1200 on this move, so a clean break above 1111 tomorrow could see the targets hit within 2-3 weeks. The full stochastics are one Fibonacci cycle higher than the prior chart, with the %K above the %D. The oscillations from bottom to top on this cycle generally last for at least 4-6 weeks, so expect at least another 3-4 weeks remaining in the upside.

Figure 2

The weekly XOI is shown below, with Fibonacci time extensions shown near the top of the chart, with the next Fib date due around mid June 2006. The lower 55 MA Bollinger band is only at 743. The entire bull market may see the lower 55 MA BB slowly continue to creep beneath the index. Fibonacci price projections have had significant support/resistance levels for all of wave [2] underway since March 2005. The next important level of resistance is at 1181, near the measured move (determined last week from positive reversals noted from shorter-term stochastics). Full stochastics have the %K above the %D, with average oscillations lasting for 2-3 months. There is no sign of a top in the XOI, so expect more upside.

Figure 3

The short-term Elliott Wave count of the XOI is shown below. Last week I mentioned the XOI was forming a wedge and likely would break out of it. Well, today that happened with a close on the highs. There are two ways to label this count, the way I have, or wave C ending right near the apex of the wedge (wave [x] ending where (b).[y] is and the triangle starting there). I prefer the count I have due to the triangle setup. Presented. Wave D is underway, with an expected wave E triangle to subsequently form thereafter.

Figure 4

The mid-term Elliott Wave count of the XOI is shown below, representing all of the wave [2] correction to date. Wave (X) was a zigzag, because only two impulsive wave structures were present. Wave (Y) underway since September is likely forming an upward trending triangle prior to the start of wave [3]. Wave [2] is a running correction, meaning that wave [3] is going to be an explosive move traveling the greatest distance in price out of all five impulsive waves. Wave [3] should last for approximately 15-18 months, ending around the end of 2007. Wave [4] will see a correction for most of 2008, with a wave [5] blow-off for 2009 and maybe into early 2010. This bull market move will be over in a relatively short duration (4 years from now). The old saying that you can only make hay while the sun is shining holds true, so start making hay.

Figure 5

The long-term Elliott Wave count of the XOI is shown below. No Elliott Wave count is perfect, there are usually some principles that get stretched. The best way to assess a count is to determine how time relationships of macrowaves fit with one another. There must be balance. As a side note, I have received numerous emails from different people wondering why I do not have the HUI as wave II being a large running correction, with wave I being approximately 8 months in duration and starting at 60, rather than 35 where I have it. For good reason; wave I must be in balance with wave III with respect to price, time and complexity. As I stated before, some things are not perfect and the updated HUI count I put up has the best-balanced approach to fit the rules and surrounding wave structures. Ok, back to the XOI. The wave (2)-(4) trend line runs in to wave (3), but due to the set up of a running correction for wave [2]. Please, please, please hold on to your energy stocks and add on weakness, because this will truly be a life changing time period during the next few years. Gold and silver stocks really have taken off the past few weeks. The Captain recommended ECU last year at 0.40 cents/share, now it is at $2.40/share today. A long-term view is needed for the big profits to change. It is better to be over-leveraged in gold and silver, energy stocks right now, because as the bull market proceeds, the profits will rise quickly and adding on weakness will not be anywhere near as profitable.

Figure 6

Many people I know only feel comfortable buying $30/share stocks because they are safer........the downside is that unless a large position is taken, the returns will be miniscule compared to very good companies priced around $1/share. I find that there are so many good stories out there that I want to own as many stocks as I can. A balanced portfolio should have around 20-30 stocks, no more, otherwise it becomes difficult to track them. Well, that is all for now. I will update the USD tomorrow AM. Regarding the S&P, yes it is still going higher. Stock markets are inflationary devices and will melt higher, even though fundamentals stink. Indices are also fluid, meaning as more and more energy and precious metal stocks are added to replace dogs in the S&P, the more support the index has.

Back later tonight with the USD update.

David Petch
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