Market Harmonics
 Energy Watch

	BASE METALS		PRECIOUS METALS		ENERGY		GRAINS		SOFTS

Oil Stocks Update

The rallies in the AMEX Oil Index (XOI) and the PHLX Oil Service Sector Index (OSX) that we discussed last month may at this point be winding down.  Minimally, we are alert to that possibility.  To reference last month's comments, "both the XOI and OSX appear to be tracing out larger ABC rallies, of which Wave C should have been launched off the November 25th low.  Ultimately, the top of those rallies should end the Wave (2) recovery in effect since the October 4th low, after which we would expect that low to be violated in a larger decline." 

This remains out outlook, and particularly so based on the corrective recoveries that have unfolded following the pullback of December 5th-19th.  Per our chart, the XOI appears to be tracing out a Wave C diagonal triangle, which may have more left in it for completion.  A clue to look out for would be a sharp thrust, followed by a sharper reversal.  The rally pattern in the OSX is even more corrective, which challenges the prospect of stronger upside moves for the oil services group.  Also, as our chart below suggests, relative strength in the OSX versus the XOI has been weaker since their tops were formed last Spring.  

Historically, the data indicates that during periods when both indices correct, the OSX tends to decline more severely.  For example, during the corrective period last year that produced the October 4th low, the OSX had declined 42% versus 32% in the XOI.  This would suggest that any new correction that develops should likely have a greater impact on the oil services company stocks.

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