NYSE Arca Oil & Gas Index (XOI) Could Break Above Key Downtrend

By Jim Donnelly, Olson Global Markets

In the wake of a series of data that suggests a global economic slowdown may be accelerating, the NYSE Arca Oil & Gas Index (XOI) continued to push higher. Moreover, it could soon challenge key downtrend resistance currently sitting at the 1,300 level. In the absence of an overbought condition on weekly charts, this technical set-up is interesting and, perhaps, at odds with growing evidence of global weakening.

The XOI index is comprised of 13 large global integrated oil and gas companies that include: Anadarko Petroleum (APC), Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM), Hess Corp. (HES), Marathon Oil (MRO), Occidental Petroleum (OXY), Petroleo Brasileiro (PBR), Sunoco (SUN) and Total (TOT).

While some reports suggest that slack global economic growth could restrain an increase in annual oil demand to a modest 900,000 barrels per day in 2012 and an increase of a lesser 800,000 barrels per day 2013 (to an average 89.6 million barrels per day in 2012 and 90.5 million barrels per day in 2013), general price increases would theoretically be tempered. Therefore, a solid break above key resistance at 1,300 might be viewed as divergent, particularly since weekly charts suggest that such a “breakout” could lead to much higher levels.

Nevertheless, the correlation of XOI to domestic employment, economic growth and the equity markets in general has been reasonably high in the past. As a result, a “breakout” to the upside on the XOI may prove to be a festinating indictor of future economic activity for the months and years just ahead.

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