The OIL rocket

Nothing can rise exponentially, even if it’s OIL. The asset’s exponential rise is more an indication of an ending trend and not vice versa.

We don’t have any chilly warning about OIL heading to dollar 200, like many in OPEC believe. Does OPEC really know? The axiom linked with the 40 dollar plus OIL, as a harbinger of recession has been long trashed and now not only we are waiting for recession but also for dollar 200 OIL. It all seems a bit strange to us.
OIL moved up 3 times from the 40 dollar mark and DOW is still at 13,000, just 7% lower than the historical top. So either the other best indicator for a recession that is S&P500 and DOW Jones have stopped working or econostats have blinded us.
For a start, we have some common sense rules, which say rockets come down to earth and satellites remain in the sky. The way OIL is behaving makes it either a rocket potentially getting ready to become a satellite or this all is an illusion. OIL can never become a satellite, no asset can. And the almost ninety-degree inclination to new highs is destined to collapse. And what will collapse along with this is the dream of OIL riches.
It’s how you look at it. Bloomberg Markets looked at it as the END of OIL era and a few Wall Street brokers looked at is a great time to solicit mass mailing lists for OIL CALL options. Well we don’t subscribe to the OIL end era yet, but if the best broker suggests buying CALLS with such confidence, we definitely don’t know something he knows or something everybody knows. But that’s good, if we don’t know, what everybody knows. Because if everybody knows something it’s already discounted and the truth is already out there that OIL is TOPPING.
Of course the reason of the fall, when it happens will be like this…”Winters were cold so OIL rose and summers are hotter so OIL is falling”. When OIL falls in winters, which it did from 2000 to 2002 and later in 2006 to 2007, the winters were warm. For us OIL is more than a climate barometer. It’s like all other assets, which are connected with 0.5, 4, 11, 30, and 90 year cycles. And all these time cycles can explain cycles of inflation, deflation, disinflation, food, gold, equity, recurring geopolitical crisis, interest rates and also how we should handle a portfolio within the year. It also tells us about what is going to happen to OIL in 2012. We will be discussing this next time when we talk about asset cycles in 2012.
At this stage what we can see is a sentiment euphoria which is hard to sustain. The five-legged fractal structure both starting 1999 till 2008 and the smaller five-legged sub structure starting in 2007 it seems is complete. And holding one’s impulses to ride on this rocket seems reasonable to us. FIB and CHANNEL targets lie at current levels. We don’t see OIL above $ 125 at this stage and our research IMPULSE (we are humans too) shows more of a PUT than a CALL.
What will happen can also be explained with another magical previous 4 rule. Price impulse moves in a five wave structure. And you can label them like a school exercise of counting 1 up, 2 down, 3 up, 4 down and 5 up. Now this exercise can be done on a large (multi-year) time frame and a multi-day time frame. This is what we keep mentioning as mass psychology fractals impulsing again and again at all degrees. It’s the magic human nature plays with precision.
After every impulse the markets take a pause and fall in three wave structure (a down – b up – c down) and then the impulse starts again in an unending process. That is why we say that the world may never come to end, it’s just that some time the volatility of relentless market action becomes too much for a society looking one way. This always happens, like the subprime mess and the credit crisis. We all look up to OIL now and not NAT GAS, which is the next multi-year outperformer. We love to see rockets and ride them, other things don’t excite us.
So whenever an impulse (five legs) takes a pause, they fall to the previous 4 wave. This is a frequently witnessed event in fractals. Previous 4 wave supports are also mentioned as the last supports standing. Prices should not fall below the previous 4 wave or rise above the previous 4, if the trend has to continue. Of course, this is a guideline, but this appears more time than coincidence.
You can see this everywhere, BSE OIL, BSECG, BSE BANK, BSEAUTO, SENSEX, NIFTY and CNXIT (Indian Sector Indices). They are all full of previous 4 wave retests. OIL, when it turns down could fall to first a previous 4 wave support at dollar 90. And if it indeed breaks that, we can be in for sub-dollar 70 levels. And this we are talking about the next few months. We can be wrong. But not like the poor chicken, an anecdote quoted by the late A J Frost, Market Guru.
The chicken used to run at the presence of the man, but man’s appearance on the scene was linked with corn. This happened 999 times, till the Chicken went to thank the man and had his neck sliced. Though anatomy proves that we are more like sheep and herd, we indeed might be chickens when it comes to cause and event linkage. We are miserable here and believe summers and winters drive the Oil rocket. Indeed a poetic tragedy.