Weekend Sept 8 2013
Oil Prices must go higher. this article quotes Charlie Munger and Exxon's predictions out to 1940.
On the other hand, oil prices are likely to drop significantly. Actually Amy Myers Jaffe hedges her bets by saying a protracted war in the mid East would raise prices for several years. On the other hand if there is no war the prices will fall significantly.
Both articles attempt to use the vagary of fundamental unknown events to project price. This is why economists never get it right and invariably assume whatever is happening now, oil prices are rising says Munger, will continue indefinitely.
The better idea is to simply watch the charts. We are looking for similar patterns that preceded important tops as well as significant weekly reversals. A rapid parabolic rise in price usually precedes oil topping, and then a dramatic reversal tips the hand as to lower prices ahead.
Crude Oil
Crude oil vaulted past resistance at 97 and then 108 this week. At bottom the rate of change, the or the change in the slope of the move is advancing. This is what happens in the aster stages of an advance.
The top in oil in 2008 occurred some eight years from the top in the NASD in early 2000. We are now another 5 years out or 13 fibonacci years from Year 2000. With former doves kerry and Obama in and out of commitments (I did not set a red line, the world did) to 'do something about Syria, it is not surprising the price is higher. A this point there is little resistance from here to the last high at 145.
I am still looking for a price high in February, 2014. Five months between now and February along with endless coverage of whatever happens in Syria should be enough to get us back to all time price adjusted highs. At that point transportation costs overwhelm the cost of doing business and price starts to fall.
Price Adjusted Oil
Notice that in 1979 and 2008, the price went vertical just as it approached the final top. The increasing rate of change now suggests we will see a similar event over the next few months.
Gold and the Dollar
A reader asks us to comment on the rise in the gold price. We plotted gold in gold against the Dollar in
red and black, Gold has risen since July on a falling dollar. Note during August that gold flattened out as the dollar bottomed and then started rising. NOtice the MACD is flattening at bottom as it tracks the US Dollar.
Gold Longer Term
Gold bounced nicely Friday from 1358.80 to close at 1391. since it did not close below 1364, this suggests a test of the overhead 200 week MA at 14725. Note the downtrend line comes in at that juncture as well. the Dollar closed up for the week and there is tremendous Resistance, ie selling pressure around the 1500 area. Out of an abundance of caution I exited my Small position in DUST Friday afternoon after watching gold stay up all day.
GDX
There were articles this week about gold miners going out of business. Notice the volume spike a week ago as GDX topped. This is suggesting more downside ahead for the miners and gold. Last week we suggested $1,000. today I see Toby Connor, an admitted gold bull, is coming up with the same target.
NASD 100
Like oil, (it's all one market) the NASD 100 keeps taking out resistance levels. It closed above teh 3130 level Friday suggesting higher prices ahead.
NASD Internals
Another reader asks for clarity regarding my every changing position of market internals first calling for lower then higher prices. I am now assuming we have a low in place for the NASD Summation Index. That translates in to the NDX about to breakout of a consolidation pattern.
QQQ, NASI
While seasonal patterns argue agaisnt being long in Sept and October, the NASD summation index
at boottom has helped predict the moves in QQQ. Will QQQ tack no another seven points, looks like it!
Of these four popular tech stocks would you have guessed Price Line would be up 50% since the low last Novermber, me either. One rarely sees a Shatner ad for PCLN anymore. but this is what is powering the NASD 100.
Interest Rates
With Bernanke on the way out, I doubt a new FED Chair will begin QE number whatever quickly again. Manufacturing stats are improving but the jobs report Friday. showed more people leaving the work force or giving up looking.No surprise, a plate of Food Stamps, AFDC, subsidized housing, brings home more than a $12 wage so why work? Unless the FED embarks on another vigorous buond buying program I suspect interest rates stay up. John Murphy at stockcharts maintains higher rates are part of a stronger economy. Like Bob Prechter I suspect they are an early warning of massive municipal pension problems ahead.
EEP
I did buy some EEP, one of the largest pipeline companies in the US.With no approval of Keystone in sight, EEP is paying over 7% in dividends. It is back testing the breakout at the $30 level.
Bottom Line
Look for the NDX to power higher, the SPX held on to gains and shold move up as well, the DOW is not participating as much. Oil looks higher. Gold is probably looking at a test of the 1475-1500 level but remains in an overall downtrend.
Interestingly the Pope got it right this week calling more military intervention futile. I have written my last two columns wondering at the utter lack of international concern over refugees. That is more likely to cause further breakdown in the area than a few carelessly launched missles.
My Weekly Newspaper Column
This ran today in the Andrews County News and the Odessa American
A Humanitarian Tragedy
Every Stoic was a Stoic
Where in Christendom is the Christian?
Ralph Waldo Emerson, 1840s
Lat week in this space we urged the President to use his bully pulpit to decry the human misery caused by the Civil War in Syria. To date we have not heard a word on this from either side of the aisle. Oh there are endless stories on how the Senate and House may or may not vote. But does anyone really think that Obama will become McArthur (there is no substitute for victory) overnight. Even today in Sweden, Obama is denying he ever drew a red line. No, the world did that he now claims. This hardly speaks to a policy with a clear goal, outcome, or plan of withdrawal.
I suggested that the President demand Russian help to relieve the suffering in the refugee camps. The numbers dwarf the imagination.
- 2,000,000have fled Syria
- 4,250,000 are displaced inside Syria
- Anecdotal example – 130,000 now live in the Zaatari camp in Jordan
Needless to say the lack of sanitation, clean water, and the proximity of so many people in the desert makes disease a constant concern. And once 2,000-3,000 arrive on a daily basis, the camps are likely to exist for a very long time. Yet all we witness in the news are various politicians calculating their own political gain or loss depending on what might or might not be ascribed to even a pinprick military attack. Where is the moral outrage?
As reluctant as the President has been to engage the problem it is near impossible to imagine him staging a long-term strategy. That would entail the use of cruise missiles to destroy the six air bases in Syria. Assuming that give the rebels some relief from air strikes, they will need better armament, which has yet to show up. Then a negotiated settlement whisking Assad out of the country might be possible. A protracted difficult transition might follow that keeps the bad players, Hezbollah, Muslim Brotherhood, etc, sidelined and convinced resistance is futile and well….. Does anyone think this administration has the courage or stomach to make that case to the public?
This is a situation more in demand of a Franklin Graham (BillyGraham’s son) than a bunch of calculating politicians. Readers can check out his efforts at www.samaritanspurse.org. At least there is someone in Year 2013 to answer Emerson’s question.
And the danger that just a few shots fired, see I told you there would be consequences, might lead to a wider conflict is quite possible. Add to this mix the chance that indeed Assad is telling the truth. He never used Chemical Weapons. Rather the rebels used them to force outside intervention. Frankly, that scenario makes a good bit of sense. Unable to get the US to do something for them, the rebels took the President’s dictum to heart and crossed the Red Line.
But, where does that leave us in the oil fields of the US? The market place is ‘moving on’ from the intransigence of the Administration on Keystone XL Pipeline. Enbridge EEB is expanding pipelines on its existing rights of way. Expansion of the Lakehead System will bring Canadian and North Dakota crude to the Midwest. The Seaway system would then bring it to Gulf Coast Refineries. Rail carries more crude than ever; 20% more than last year. Valero is expanding rail terminals in California, Louisiana, and Quebec.
Crude oil bounced off its 50 day moving average of $104.71 yesterday and now trades at $108. Our favorite indicator for the Permian Basin Economy the XES Oil Service Index is bouncing nicely today.
Interestingly even the stock market is finding its legs again. We expect the lows were put in this summer which will for once generate higher stock prices in the fall. As for energy, we are focused on an important high in February, 2014.
Dennis Elam Phd CPA blogs on market issues at http://www.themarketperspective.com and teaches at Texas A & M University – San Antonio.
Thanks for reading The Market Perspective
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