2013 Outlook
The price of oil has a very strong
correlation to the economy, especially since Peak Oil was reached back in
2005. Before when there appeared to be unlimited oil, prices would only rise
with inflation or increased expenses, so increases in demand would not really
have much of an impact on prices. Peak oil however has an important caveat
that oil can not be pumped out at a greater pace, in fact, declines start to kick in sharply once
production of an oil field/well has peaked. Human kind has been able to extend
the effects of peak oil by increasing the total volume of biofuels, increased
use of natural gas, shale oil etc. but continual
year over year increases in demand will soon reverse this short-term trend.
Since oil is directly tied to how
well the general stock markets perform (which reflect overall economic
activity), weakness in the broad stock market indices will at some point be
reflected in the price of oil, which feeds back into the share price of
energy stocks. The broad stock market indices are expected to perform well
into the April/May 2013 time frame, which translates into oil prices
remaining at present levels or heading higher. A top in the broad stock
market will be the first indication that a top in oil prices loom 6-8 weeks
after and this top is based upon the Contracting Fibonacci Spiral.
When I came out with the Contracting
Fibonacci Spiral (CFS) theory that markets were trapped in back in July 2011,
it has predicted broad stock market price action rather well (as the US
Dollar) but has not been a good indicator for how gold stocks performed in
2012. Since the CFS predicts tops for broad stock market indices in the US
(linked back to the 1934 bottom and subsequent adoption of the US Dollar as
the global reserve currency), it serves as an indicator for when to exit the
stock market before a sharp decline commences. A revised article on the
original CFS piece described in July 2012 will tentatively be published in
the April 2013 issue of Stocks and Commodities magazine. Some tweaking was
involved with current ratios, which suggests a top in the broad stock market
indices is due no later than sometime in May, 2013.
Based upon our timing model, the
broad stock market indices top out first, followed by the XOI, HUI (precious
metal stocks) and then oil and gold. There is a 2-3 month advance in
commodities beyond the broad stock markets topping out due to higher prices
causing an economic slowdown in the form of a feed-back loop. The CFS has
called every major top since the 1934 bottom...every CFS time post indicates
a top that follows a very sharp decline that may be brief (as per 1987) or
long in duration (as per the 1966 top). Once the CFS top comes due between
March and May 2013, commodities should peak no later than October 2013.
Subsequently, there is a very sharp bought of deflation expected that will
tentatively last until mid to late 2014, but since the current time post is
on the flash crash line, the decline could be more rapid than any of us could
imagine.
Gold has been languishing for some 16
months at present and is due for a move to the upside...but if history is any
guide, any bout of deflation results in extreme liquidation of all assets, so
being in cash, particularly US Dollars once positions have been exited
accordingly appears to be the best play for the latter half of 2013. Gold
will continued to be monitored on a weekly basis in all of our updates
because when it does break above $1800/ounce, it has a projected move to
$1950/ounce, followed by a back test of $1920/ounce and then off to new
highs...there could be some unexpected twists going forward that will be
discussed over the next few weeks. The bull market in gold still has another
7 years, which correlates to the termination point of the CFS. The barren
desolate isolation of those holding precious metal stocks is going to slowly
disappear as earning multiples of producers start
to sharply rise with that of gold and silver over the coming months and years
going forward.
With rising prices with also see a
rising interest in governments looking to profit in any way that they can,
whether it be through taxation or expropriation of property. This is why is
very important to own gold stocks in countries that have political stability.
The best countries to own gold stocks are in Canada, Brazil, US, Mexico and
Australia. Mexico remains to be one country that could have a shift in
policy, but this will not occur until near the very end when the wealthy have
unloaded their precious metal stocks onto a dumbfounded public.
I will write more about this in the
coming weeks, but the take home message is that precious metal stocks are
finally set to slowly start an ascent to higher prices. The entire precious
metal space is nearly as oversold as 2008, yet the broad stock market indices
still remain near pre-2008 highs. The clear decoupling of precious metal
stocks to the broad stock market indices may be very telling of what lies
ahead over the coming months.
From analysis of 9 healthcare
companies I have started to follow (most are blue chips), there is no
indication of any top until the April-June 2013 time frame, which is
consistent with analysis of most of the sectors I cover. Further analysis in
this article focuses on the AMEX Oil Index to provide support that upside in
the broad stock market indices is likely to continue to our mentioned dates.
Once we pass the CFS time post and a topping process, a very sharp decline of
at least 40-50% in the broad stock market indices is expected (as per all
other prior time posts) before a bottom is put in place. Our focus is to take
advantage of this recently discovered cycle for trading purposes to maximize
profits and preserve wealth.
AMEX Oil Index
The daily chart of the XOI is shown
below, with a noted gap up last week, suggestive that higher prices are
looming. The lower 55 MA Bollinger band has curled down, which suggests
further upside for another 3-4 weeks before any sort of a top is put in
place. 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 2
and 3. Extrapolation of the %K in stochastics 2 and
3 suggest anywhere from 3-5 weeks before a top is put in place. The current
move is likely to test the 2011 high of 1350 before having a partial
retracement of the advance and breaks toward the 2008 high around 1600.
Figure 1
The weekly chart of the XOI is shown
below, with upper 21 and 34 MA Bollinger bands in close proximity to each
other, suggestive that further upward price action is likely. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D and above the %D in 2 and 3. Notice the
%K in stochastic 1 curling up...this suggests anywhere from 4-7 months of
upward price action before a top is put in place. The XOI has been in a
sideways price action trend for the past two years (which is clearly denoted
in Figure 10), which suggests a breakout to the upside or downside is
looming. Everything that I follow suggests this breakout will be to the
upside.
Figure 2
The monthly chart of the XOI is shown
below, with a gap up in price so far for 2013. 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 2 and 3. Notice how the %K in stochastic 1 has curled
up... this suggests at least another 5-7 months of upside before any sort of
a top is put in place.
Figure 3
The long-term Elliott Wave count of
the XOI is shown below, with the thought pattern forming denoted in green.
The XOI is still in a triangle, to complete wave C.(B),
with wave (C) to follow. It is possible that wave A after (A) is wave (X),
wave B is A, wave C is B and wave C is to follow to complete wave
[B]...either count is possible, with the coming high expected to touch the
2008 high...nothing more. This would correlate with the XOI and S&P 500
Index topping out around 16.50, with a 1:1 correlation. Once a top is put in
place, expect a sharp decline in wave [C], which should coincide with a surge
of strength in the US Dollar Index.
Figure 4
That is all for today...back tomorrow
with an update of the HUI and S&P 500 indices, which will be one of the
most important updates I have posted in a while. Have a great day.
David Petch
Treasure
Chests.com
Treasure Chests
is a market timing service specializing in value-based position trading in the
precious metals and equity markets with an orientation geared to identifying
intermediate-term swing trading opportunities. Specific opportunities are
identified utilizing a combination of fundamental, technical, and
inter-market analysis. This style of investing has proven very successful for
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