AMEX Oil Index (XOI)

NYSE Oil Index Poised to Move A Lot Higher

Posted in AMEX Oil Index (XOI) on March 2nd, 2012 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Although demand for gasoline in the United States sits at a 15-year low, rising tensions between Israel and Iran, the shuttering of a number of East Coast refiners and the loss of supply from smaller producers like South Sudan, Syria and Yemen have both oil prices and refined petroleum products rising sharply.

The NYSE Oil Index (XOI) reflects this condition, but also suggests that higher prices will likely persist. At week’s end, the XOI (which includes equities of both oil produces and refiners alike) stood at 1,340 with longer-term (monthly) technical oscillators rising from mid-level readings. Importantly, a break above key downtrend resistance at the 1,347 level, if it were to occur, would be viewed as a technical “breakout” and another big plus for the oil sector.

Moreover, the next major resistance level above 1,347 currently sits at 1,475 and rises over time. A test of the 1,475 area, if it were to play out, would amount to a 9.7% gain from Friday’s close.

Interesting, recent history suggests that higher energy prices are positively correlated with a rise in the S&P 500 index, a decline in the U.S. dollar index and rise in U.S.exports. Longer-term history suggests, however, that rising oil prices eventually helps to narrow household disposable income with rising gasoline prices and associated transportation costs pushing commodity inflation higher as well.

Ironically, mild winter weather conditions with higher-than-normal temperatures have reduced home heating costs leaving additional disposable income in consumer’s pockets this year. Some suggest that this, along with a decline in the unemployment rate, has sparked a recent spate of elevated consumer confidence readings.

Additional gains in energy prices, however, might change this correlation if consumer wage gains fail to keep pace with household expenses. For now, however, higher energy prices are likely to emerge until a “tipping point” is reached.

Oil Prices Appear To Be Aimed Lower

Posted in AMEX Oil Index (XOI) on September 6th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Although already in an oversold condition, Amex’s XOI Oil Index appears to be aimed for a retest of key “cross” trend line support now sitting at the 1,060 level. Normally, a test of this type with oversold conditions at hand would suggest that a buying opportunity might be nearing. In the case, however, a move lower will likely be accompanied by a possible run-to-safety shift back into U.S. dollars and/or dollar related assets given the current worries over European banks and Sovereign debt issues.

Moreover, Friday’s dismal employment report has apparently increased concerns that a renewed economic contraction in the U.S might soon unfold. If it does, a global slowdown may emerge as well. These conditions could add to the thought that oil demand may diminish over the intermediate-term. With that said, a failure for the Amax’s XOI Oil Index to hold near 1,060 could result in an eventual move down to a test of long-term trend line support now sitting at 937.

If this latter scenario plays out, Elliott-wavers will likely point out that a move to the 937 area would more-or-less finish off a bearish 5-wave structure in the XOI Index that began on May 2, 2011 from its recent high of 1,410.