My belief is that, when it comes to equities, the best course is to always trust the chart and rely on trends. Of course, these charts do not always prove to be correct. The chart is simply an instrument of statistical analysis. As we have seen in such events like the Bush v. Gore Presidential race, the statistical analysis of the exit polls did not accurately predict the race. So when we are making these statistical guesses, we have to utilize risk management in our trades. I could be wrong about oil and so you should not take this as a factual analysis, but merely an opinion based upon statistics. In layman's terms, this is an educated guess.
So with that said, I will now move onto the reasons why I believe oil is going to $70+ per barrel. At the beginning of the year, we saw an event take place. This event did not happen overnight, but had been building up since July of 2006. Money was flowing out of energy stocks and oil contracts and into other areas of the market that were appreciating. The culmination of these outflows occurred at the start of January with oil suddenly tanking.
I would like to point out that oil has broken through the trend lines and moving averages which is a very bearish sign. However, there are other patterns on this chart that give me confidence in this prediction. Notice the "V" formations that are everywhere on this chart. When oil has dumped down in the past, it has been followed by a 40% surge.
So why did oil suddenly break down over the summer? Was it that everyone stopped driving cars? Did the demand for oil suddenly not exist? The answer to this question lies with Ben Bernanke. At the summer Fed meeting, the policy statements suggested that the Fed would not go too far in tightening and might even be loosening in the future. The ten year yield then plummeted until November. In response, the overall market shot up and money managers pulled their cash out of oil and energy related stocks. It was not that world demand had suddenly tanked, it was that money managers no longer demanded the investment as other equities were providing a better return.
Recently, the Saudis had said there was no need for an emergency meeting. One has to ask themselves as to why...Here oil is tanking and the Saudis are smiling stating that there is no need for an emergency meeting. This is because the oil producing nations are selling their bonds quietly and egging up the ten year yield. As the ten year yield goes higher, the overall market will start to flounder. Money managers will bring their cash back to oil.
The Saudis are aware of the bond market yields/stock market relationship. When the interest rates start jumping then the stock market will flounder. As I have pointed out previously, a ten year yield over 5% will most probably tank the overall market. However, the outflow of money will flow into other areas once again like oil and natural gas.
My prediction is that oil will have an amazing 40% rally and reach up over 70 dollars in the next 6 months.
Dr. Michael Roberts
So with that said, I will now move onto the reasons why I believe oil is going to $70+ per barrel. At the beginning of the year, we saw an event take place. This event did not happen overnight, but had been building up since July of 2006. Money was flowing out of energy stocks and oil contracts and into other areas of the market that were appreciating. The culmination of these outflows occurred at the start of January with oil suddenly tanking.
I would like to point out that oil has broken through the trend lines and moving averages which is a very bearish sign. However, there are other patterns on this chart that give me confidence in this prediction. Notice the "V" formations that are everywhere on this chart. When oil has dumped down in the past, it has been followed by a 40% surge.
So why did oil suddenly break down over the summer? Was it that everyone stopped driving cars? Did the demand for oil suddenly not exist? The answer to this question lies with Ben Bernanke. At the summer Fed meeting, the policy statements suggested that the Fed would not go too far in tightening and might even be loosening in the future. The ten year yield then plummeted until November. In response, the overall market shot up and money managers pulled their cash out of oil and energy related stocks. It was not that world demand had suddenly tanked, it was that money managers no longer demanded the investment as other equities were providing a better return.
Recently, the Saudis had said there was no need for an emergency meeting. One has to ask themselves as to why...Here oil is tanking and the Saudis are smiling stating that there is no need for an emergency meeting. This is because the oil producing nations are selling their bonds quietly and egging up the ten year yield. As the ten year yield goes higher, the overall market will start to flounder. Money managers will bring their cash back to oil.
The Saudis are aware of the bond market yields/stock market relationship. When the interest rates start jumping then the stock market will flounder. As I have pointed out previously, a ten year yield over 5% will most probably tank the overall market. However, the outflow of money will flow into other areas once again like oil and natural gas.
My prediction is that oil will have an amazing 40% rally and reach up over 70 dollars in the next 6 months.
Dr. Michael Roberts
