Thursday, December 18, 2008

Divergence Wars

When indicators and prices diverge, usually it is price that concedes and moves in the direction of the indicator. What happens when a commodity and its related stock sector diverge?

Again, it is usually price that gives up. This chart does not believe oil is going to 25 bucks per barrel.


Paul O'Cuana said...

Is that a double bottom for the oil stocks?

tinman said...

Take a look at the twenty year Crude Oil chart. This spike looks like an aberration on it, and with the high price increasing supply, maybe it's possible for oil to return to the mean.

Price cures price.

Just a thought.

Matt Blackman - said...

Good pickup Mike! Looks like the smart money is beginning to accumulate DBO.... Great R/R...

Matt Blackman

Michael Kahn said...


I see the 20 year chart but to me "reverting to the mean" implies that prices swing too far in both directions.

Is it possible that the "mean" really means a rising trend? If so, then I think this markets reversion to the mean actually demands an increase in price.

I don't want to get into a peak oil discussion but we all have to agree that they are not making any more of this stuff.