The Dow Report: An Intermediate-Term Look at Oil
By Tim W Wood CPA, December 1, 2006
We all have an interest in oil and with oil now at an important juncture, I feel that this would be a good time to follow up on it and explain where we are on an intermediate-term level, how we got here and what appears to be ahead. In early August my Cycle Turn Indicator triggered an intermediate-term sell signal and I later reported this in the August 18th Observation. Then, as the market moved down into October I reported that we should be looking for a low. In the October 27th Observation I then reported that the low had been made and that my intermediate-term Cycle Turn Indicator had triggered a buy signal. The week of November 17th we did see a dip down below the October low and this actually triggered a brief sell signal on oil again. But, on November 21st that brief sell signal was overridden by another intermediate-term buy signal that was confirmed by my weekly Cycle Turn Indicator. This gave what was in effect a double bottom. As of this writing our intermediate-term buy signal that was triggered on November 21st when oil bettered the previous week's high and the Cycle Turn Indicator turned up is still intact. This can be seen in the weekly chart below. This buy signal will remain intact until price action is such that it turns this indicator back down. So in the meantime, higher oil prices at the intermediate degree are still expected.
In the next chart below I am also showing a weekly chart on crude, but here it goes back to 1998 and I have included my Trend Indicator. There is a pattern or seasonal tendency that I want to point out here. I have labeled each of the "seasonal" or annual cycle lows just below price with an "I." Note that the tendency for oil is to form its intermediate-term cycle low late in the year and then to rally into the new year. This intermediate-term cycle low occurred in December in 1998, 2000 and 2004. It occurred in November in 2001, 2002, 2005 and this year. In 2003 this low occurred a bit early in September. The late 1999 cycle was stretched and bled over into early 2000 bottoming in April, but the next cycle was short and occurred in accordance with this natural tendency in December 2000 putting everything pretty much back in sync.
My point here is that oil has moved into the time of the year in which most of the intermediate-term cycle lows are expected to be made. Plus, we have a confirmed intermediate-term buy signal that was triggered in October and then again in November by the Cycle Turn Indicator, plotted in the first chart above. With the seasonal tendency for a low being what it is along with the intermediate-term buy signal, oil has a good chance of still moving higher.
The next step is to see if the longer-term Trend Indicator, plotted in the chart above, can turn up. If so, then the strength of this rally will be even further confirmed. The downside risk to oil would be to see this rally fizzle and an intermediate-term sell signal triggered before the Trend Indicator can turn up. I'm not suggesting that this will or that it will not happen because that would merely be a guess at this point. I'm just telling you ahead of time both the positive and the negative side of this equation.
Next, we have a weekly chart of unleaded gasoline. Here I have plotted the intermediate-term Cycle Turn Indicator. You can see here that this indicator has remained positive since its upturn in early October. Here too, we have confirmation that the intermediate-term advance is thus far alive and well in unleaded gasoline as well as oil.
In the next chart below I have included a weekly chart of the Oil Services Index and my Trend Indicator as well as the Cycle Turn Indicator. Here you can see that the Cycle Turn Indicator also turned up in early October in association with an intermediate-term buy signal. More recently, for the week ending November 24th, the longer-term Trend Indicator turned up providing further confirmation of the intermediate-term low. So as you can see from this brief overview on the oil sector, both the indicators and the seasonality are positive for oil. Until these intermediate-term indicators turn back down, higher prices are expected.
If you are interested in a statistical and technical based source that also utilizes Dow theory and provides turn points for gold, the dollar, bonds and the stock market, using both statistical probability and my unique set of turn indicators, then Cycles News & Views may be for you. In the November issue I give all of the statistical probabilities for the 4-year cycle, based on the recent advance, as well as what should follow after the 4-year cycle low is made. I have now made a slide show presentation on the 4-year cycle available to subscribers and in the December newsletter I will be looking at what the probabilities are telling us about the "Santa Claus rally." A subscription also includes short-term updates three nights a week. Please see www.cyclesman.com. For a sample newsletter on the Dollar, please click here for a November 2006 exerpt.
Tim W. Wood
© 2006 Tim Wood