Rising Oil Prices: How Much Is Left In The Tank?
Part of what we do at Asbury Research is to try to identify emerging trends in the financial markets in their very early stages, and then to determine how long these trends are likely to last. To do this, we use a combination of; 1) technical patterns and price action, 2) inter-market relationships and 3) investor sentiment. Today's blog posting is about investor sentiment, and how useful of a tool it is in cutting through all the rhetoric in the financial media when trying to determine the probable starting and ending points within a price trend.
At the end of April, crude oil prices had just collapsed by almost $9 per barrel (7%) after spiking higher by $20 per barrel (20%) since the beginning of the month. This quick 180 degree turn-around in oil prices brought a lot of analysts out of the woodwork and into the financial media to forecast a peak in oil prices -- and recent price activity alone certainly made it look like they might be right.
However, our investor sentiment data told a completely different story.
In our April 30th Sentiment Survey report (which examines investor sentiment for the US stock market, US interest rates, foreign exchange and economically-sensitive commodities), one of the data series that we were watching closely was our Rydex Energy Ratio. This ratio is the total assets invested in the Rydex Energy plus Energy Services Funds divided by the combined total assets invested in all 18 Rydex sector funds. It indicates how much “sector bet money” is being directed to energy-related assets. (Note: We use the Rydex data to construct investor sentiment indicators for all sectors of the S&P 500.)
Here's the chart from that report, which displays the Select SPDR Energy Sector exchange-traded fund (XLE) in the upper panel, and our Rydex Energy Ratio in the lower panel.
The green and blue highlights in the lower panel of the chart define under- and over-invested extremes in our ratio which, as the color-coded vertical highlights point out, have coincided with most every important near term bottom and top in the XLE since 2005.
The rightmost green vertical highlight shows that, contrary to what one would have thought in late April as the XLE and crude oil prices were plummeting from all-time highs , the Energy Sector was still only about halfway to reaching previous over-invested extremes (from its February lows). This told us that, at least from an investor sentiment standpoint, there was still more room for energy-related asset prices to continue moving higher before the likelihood of a near term peak came back into play. Since that report, crude oil prices have indeed risen, by almost $16 per barrel (14%), while the XLE has coincidentally risen by 6.68 (9%).
You can view the rest of this report and some of our other recent blog postings by clicking here.
CLICK HERE to request more information about Asbury Research.
CLICK HERE to view some recent samples of our reports.
Asbury Research provides a unique blend of technical, behavioral and quantitative analysis from a 25-year veteran of the US financial markets. Our research is directed to a small group of sophisticated investors that understand the value of limited distribution, independent thinking and personalized attention. Asbury Research offers the Asbury Indicator Matrix™(AIM) which integrates price action, investor sentiment and intermarket analysis to produce a forward-looking, multi-dimensional assessment of WHERE the major US financial markets are headed, WHAT market factors are most likely to affect their current price trends, WHEN these trends are likely to change, and WHY, and HOW to determine when they do. Our clients include the Chief Investment Officers, Portfolio Managers and Head Traders for some of the most prominent portfolio and hedge fund managers in the world.
Back to Top Advisors Corner Menu
