Sunday, October 12, 2008

Oil - yeah, so I was right about something at least

well Crude Oil finally made it below 80, a price target offered by Trend & Value on at least a few occasions the last five months. (two that come to mind are this post from the middle of May, and this post from late July.)

did I call the top precisely? nope. I'm not an oil market timer. (besides, I was on vacation at the time.) am I going to call last week's lows a bottom now? nope. it might not go lower, but all over the world the oil exploration and production boom is still going strong.

my brother-in-law delivers potable water to rigs in North Dakota. he works long hours, but makes really good money. and now he's making really really good money, because he just got a 50% raise. (if Americans weren't so lazy and were willing to move someplace and work for a living I might have more sympathy for these new unemployment numbers.)

so the boom's yet to go bust. and maybe it won't on this cycle. but the fact that the drilling of marginal wells hasn't slowed at all tells me that oil at 80 bucks isn't a necessarily rock-bottom price.

by my accounting the price of oil has likely just completed a five wave corrective pattern. here is a chart of USO, the ETF that invests in oil futures:

it's possible that most, if not all, of the mid-term risk has been removed from the market. however, this five wave correction could easily be viewed as just the 'A' portion of a larger ABC correction. if so, then what comes next should be the 'B' counter-trend bounce (which could likely retrace as high as the 200 day moving average). the final 'C' move down may or may not bring prices to a new low.

but if oil prices do end up forming a base somewhere in the 70 to 80 dollar a barrel range, then the Oil Services sector currently offers some of the greatest value in the equities markets.

that's a longer-term point and figure chart of the Oil Service Holders ETF, OIH. I'll look at individual companies in another post.