Update of Oil, Natural Gas and the AMEX Oil Index

Oil

The daily chart of oil is shown below, with oil shooting well above all three Bollinger bands, suggestive that oil will consolidate for at least 7-10 days before trending higher. Normally, when prices run well above upper Bollinger bands, a consolidation is required, or a pullback is in order. Given the fact that all three lower Bollinger bands are positioned in close proximity to each other and the lower 55 MA Bollinger band curled lower, oil prices are highly likely to remain above $90/barrel and eventually rise above $100/barrel before summer's end. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. The %K in stochastic 1 appears to have curled up and if the trend continues, then upside should drift into late March/early April. As mentioned, the spike above all three upper Bollinger bands is likely to have a consolidation period before advancing higher....geopolitical tensions of course could stretch this, which would make the collapse price much more drastic...remember the Bollinger band rule...it always resorts to the mean and if anything stretches outside of them, then they will spend a consolidation time between them again. If the opposing Bollinger bands are spread out (not the case here) then a dramatic reversal generally occurs. If opposing Bollinger band are in close proximity to each other (as per below), then further upside potential exists after the short-term overbought condition wears out.

Figure 1

The weekly chart of oil is shown below, with all three upper Bollinger bands in close proximity to each other. Oil prices spiked above all three upper Bollinger bands, indicating that a short-term pullback is likely. Lower Bollinger bands are in close proximity to each other and fanned out, suggestive that a break in oil prices above $100/barrel is not likely to occur until later this summer/early fall. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in 1 and above the %D in 1 and 3. Positioning of the %K in stochastics 2 and 3 suggest that sideways to upward price action in oil is likely to persist into late fall.

Figure 2

The monthly chart of oil is shown below, with upper 34 and 55 MA Bollinger bands still drifting well above the current price in close proximity to each other, suggestive that the the consolidation period is still not yet complete. The lower 55 AM Bollinger band appears to be curling over, suggestive that further upside potential lies ahead in the not too distant future. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1 and 2 and beneath the %D in 3. Extrapolation of the %K trend in stochastic 1 strongly suggests that the price of oil will remain sideways up between December 2011 and June 2012. It is impossible to pin any sort of tight date for when a top is put in place because a lot can happen between now and then. However, there will be volatility along the way as this is “Climbing the Wall of Worry”.

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