Oil Stocks versus Crude Oil
Long term subscribers know that I view data relationships/spread ratios between data streams as an essential element in analysis of stock values for investors (in the case of oil, most people are not oil speculators, just oil stock investors).
As I have been pointing out for many months, the first step in a Macro Oil Bottom would be for crude oil prices to rally versus oil stocks. That first step is what has been happening since February 1oth, a little over 3 months.
The chart below shows the relationship between the oil etf USO and the oil stock etf XLE. Since February 10th USO has increased 49 %, while XLE has increased only 23 %. The ratio between the two ETF’s declined from 7.90 to 5.60.
We believe that the next step in forming this macro bottom is for a little bounce up in the ratio, before the decline in oil stocks resumes their weakness versus oil. As a side point, I don’t think oil has seen it extreme low yet in this cycle. We will have to wait on that issue.