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Update of the AMEX Oil Index

David Petch
July 10, 2006

The incredibly strong move in the XOI increases the probability that wave [3] has commenced and I have changed the Elliott Wave labeling scheme to take this into account. New changes in trend are marked by rapid price movements above a former high in an equivalent or lesser period of time (as in the move the past week). There still is the chance the XOI goes sideways until September, but the rapid move up can not be ignored. The upper 55 MA Bollinger band is still rising and the index has not even caught up with it. The lower Bollinger bands are all declining with none curling up, suggestive a top is not in place yet. Oil prices are at record highs and stand to go much higher. As the price of oil continues to climb, investor interest will climb. How will be know if the XOI is in wave [3]? If the XOI takes out 1300 by December that would be positive reinforcement for the count.

Figure 1

Red lines on the right hand side represent Fibonacci price projections based upon the price action of upward trending wave price action projected off the subsequent lows. Areas of line overlap form Fib clusters, which indicate important support/resistance levels. The XOI blew through 1128, suggestive the current move up is the start of a new trend. Moving averages are in bullish alignment (50 day MA above the 155 day MA above the 200 day MA, with the 200 day MA currently acting as support at 1098. Full stochastics have the %K above the %D, with at least another 3-4 weeks of upside.

Figure 2

The weekly XOI is shown below, with Fibonacci price extensions of wave [1] shown at the top of the chart and Fib price projections of wave [1] projected off the upper lows of wave [2]. There was slightly more than a 1:1 equivalency between wave [1] and [2]. The lower 55 week MA Bollinger band is relatively unchanged from last week; I thought that the lower 55 week MA BB would climb closer before the start of wave [3] but as seen below, it might lag for the entire bull market. Full stochastics have the %K above the %D, within a diamond structure that has been underway since early 2004. Should the %K break above the upper trend line of the diamond, it will trigger an extremely significant breakout.

Figure 3

The mid-term Elliott Wave count of the XOI is shown below. I had the Elliott Wave count for the most recent non-limiting triangle as the first leg of an internal triangle to the larger one developing since September 2005. The incredibly strong move the past two weeks suggests that the termination of the prior structure represented a change in the trend. As such the labeling scheme given now is that wave 1.(1).[3] is currently underway. If this count is correct, then wave [3] should complete by December 2007. Lock and load because energy stocks are going much higher over the next 12-16 months. All of wave [2] is shown below and was a running correction. This suggests wave [3] will be the strongest wave of the entire bull market.

Figure 4

The long-term Elliott Wave count of the XOI is shown below. A defined impulsive move for wave [1] is followed by a large running correction in wave [2]. Wave [3] should complete above 2000 by the end of December 2007.

Figure 5

Well, that is all for today. Geopolitical tensions all over the world, CanWest Petroleum remains above $6/share, gold prices are firming up etc. etc. All of these poses well for commodity-related stocks over the coming 3-4 years. Make no mistake, the debt implosions coming in the next 4 plus years will really strain the system, so even though bullion prices might go to $5000 plus, the shares may languish due to debt repatriation. By mid-2008, 50% of investments should be converted to bullion.

David Petch

July 6th, 2006

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