WTIC

WTIC, West Texas and HOD

Hamilton

wtic may31 2011

3 months ago (and before that) we warned that oil was going to take a beating. The chart above was unequivocal in its meaning – a very nice a-triangle b –c  in progress. Here are today’s charts.

wtic june 25 2011 HOD

On the left is WTIC (continues futures contract for West Texas) and on the right I have added HOD (Horizons Betapro Oil Down 2x, the U is for Up). Being a bear ETF it should essentially resemble the other chart except that it should show twice the magnitude and be inverted.

WTIC targets, give or take, $85 which is where C=A, a normal and frequent occurrence. From about $115 to $85, if and when it gets there would be just shy of 30%. HOD, coming from $5 should therefore increase to about 1.6X 5=$8, where C is also equal to A. Paradoxically, should oil NOT drop that far, the situation could actually be much more bearish longer term. Also if these targets are met, it does not necessarily mean the end of the decline. A much more complex correction may be in the making.

Today’s drop is, prima facie, the result of the IEA (International Energy Agency ? )announcing a 60 mln. barrel injection into the system. Why now remains a little bit of a mystery considering the relative glut of the stuff. The US will contribute 40%, or so, to this endeavor by pumping the stuff out of it’s Strategic Reserves , another blatant example of a, probable illegal , use of assets in an attempt to distort market forces. Apparently this has been arranged for some time, no doubt with a little prodding from the Fed, always a champion of free markets unless inconvenient. Convoluted theories are already being presented to put a bullish spin on the situation.

WTIC West Texas

Hamilton

   wtic may31 2011

This chart is 3 weeks old. Many charts were warning that contrary to the consensus oil was going to go down, perhaps even a lot. Individual energy stocks were saying the same. Today,despite a very large drawdown of inventories the stuff dropped right on cue to form (the start) of the thrust down. Here is the chart;

WTIC.june 2011

This is most like the first $4 down, it should go a lot further.

WTIC West Texas Oil

Hamilton

wtic may31 2011

Oil has not done much during the past month of May. Looks like a consolidation phase that normally breaks out in the same direction as it was entered, in this case down. A “logical” target , as a minimum, would be about $86 from where the most recent climb started. Also that would represent a pull-back of about 38% of the entire rise from the low thirties level. It may take another week or more to complete the consolidation phase.

OIL (WTIC), SU and JE

Hamilton

WTIC2011feb

Today Nomura Securities came with a report that suggests oil should go to $220 or so. Just recently I put a maximum likely price at about $104 (see previous blog), the reason being that that would be a 61.85 retracement from the lows of the drop from $147. There are futures, there is spot and there is West Texas and Brent, you can slice this in a million ways so the $104 target has no pretense of being perfect. Above you have a stylized depiction of an A-B-C retracement, which, now that the wedge seems to be incorrect (or had a big throw-over) suggest a further rise to $100/$110.

SU has this same A-B-C pattern and could climb up to about $50. (62% and C=A).

SU2011feb

We kept the chart clean in order to make the pattern more noticeable. Also shown , below is JE, this is a great company run by Rebecca  McDonald who hails from Sarajevo. This company was formerly known  as Energy Savings and its principle business is marketing natural gas. It grows rapidly and pays a very high dividend and could be considered recession proof as nobody likes sitting in the cold. However it is not clear why the company should benefit from higher prices per se. Here is the stock;

JE 2011

What is interesting about this stock is that it came down in what could be an expanding diagonal. If so chance are very good that it will double top, but to be safe we would use a stop at around $13.