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Below is my Editorial which by some fluke of cyber space went missing last week whilst I was in transit – yours truly is on ‘the road again’ I was happy to write a new one but was somewhat amused that it was still current. And was amused also to overhear ‘Dr Mark Doom and Gloom Faber’ say that oil will go where it wants to. Exactly my view and that has not changed in the course of a mere week. Elliott projections have changed marginally but not greatly.
There are other factors at play – does it matter what these are? No.
Of course what is currently happening in the Arab world is serious from so many perspectives. Apart from following the human stories of bravery and tragedy – I am also watching closely oil which is getting much publicity. But I am inclined to believe in some ways that perhaps it is the media listening to its own hype when it comes to oil’s rally. I question whether this rally can be sustained.
The following chart is one ‘pre-revolt’ – if you like:
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This was suggesting back a month ago - the date of the chart - that we would have seen oil at $100/barrel before year’s end in any case.
This is the current weekly chart:
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Not a lot has changed. Oil is projected higher to a very similar level – pre and post revolt.
Let’s look at another perspective – a Bollinger Band:
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Bands measure volatility and also direction. And we know that when a market moves so strongly outside the bands - that the market will return to its ‘norm’ – whatever that may be at a particular point of time.
Let’s look more deeply – and look at what the market is saying not just on price – but more particularly on volume as at the end of the day that is what counts. So to an On Balance Volume chart:
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What we can see is that the oil price moving higher but volume as measured by On Balance Volumes has actually turned down. This is what we call a negative divergence. Volume has not jumped commensurably with price.
And this causes me to think that when the first opportunity arises we will see the oil price ease to a significant extent. And it also suggests to me that analysts and journos are talking up their own book.
Enjoy the ride
Tom Scollon
Chief Analyst |