Oil cyclicality

COMMODITY WATCH

Cyclicality as we explained above is omnipresent. And as Dewey said "Cycles are meaningful, and all science that has been developed in the absence of cycle knowledge is inadequate and partial".

Inter-market work talks about asset market cyclicality. How commodities, bonds, stocks and currencies move in a cyclical symmetry with each other. And one asset can tell you about the trends in the other.

Inter-market work also describes in detail the relationships between a stock and its underlying commodity.

For example relationship between oil and oil company stocks. As a guideline, the oil company stock should move in line with oil prices. If they diverge, it's a sign of a turn. And it's generally the oil stock which turns down first.

Before oil fell in August 2006, both Exxon and Reliance Industries had topped. Exxon did not cross its February 2006 close till the June crash. Reliance topped in May 2006, months ahead of the top in oil.

And now both the stocks are at a new high, but oil is far below. This is a classic divergence. Though we maintain our bullish view on oil, timing the purchase is what matters most.

We still need more confirmation to consider the oil fall from August 2006 to January 2007 as the end of the oil bear move. We would give the commodity till the end of March to tell us if it's done with falling.

And by the way, oil has a four-year cycle, which bottomed in 2006 and the next four years till 2010, we should have a new high above $100.

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