88-55-22, These are the Major Oil Numbers

The current battle of the FED, in my opinion, is to try and stabilize the Oil markets.  My contention remains that Oil is the second step in the Deflation scenario, Commodities were the first step.  Oil’s major resistance is 88, the swing point is 55, and support is at 22.

Watch the spread between two Oil ETF’s,  XLE and USO.  USO can be used as a good proxy for the oil market itself, and XLE a proxy for the refining and marketing of the oil. XLE broke away from USO at the bottom of the little 10 % stock market decline in mid October of this year.  What you have seen since then is the Oil market bottom pickers piling on in the XLE .  A closing price on XLE of 75.14, when reached, should be taken as an indication that the the Oil bottom pickers have given up.

As to a major bottom in oil, watch for the ratio of XLE to USO to take out the October 14th level, that will be the start of the bottoming process. A ratio of 2.6 is in the cards, currently it is 3.8.

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