On January 6, 2015, we said the following of the Oil and Gas Stock Index (XOI):
“The conservative downside target of 1,454.79 has been constructed while the mid-point of 1,015.10 is also indicated. However, we did not include the extreme downside target of 575.41. We did indicate in red the 812.08 level which was the extent of the decline in the period from the 2008 high to the 2009 low.”
On September 7, 2015, we said the following of the XOI:
“…lurking in the background is the extreme downside target of 575.41. Since our experience has been that the extreme downside target is commonly achieved, we hazard to guess what would happen globally to the oil market in order to decline to such a low point.”
Unfortunately, we made the following mistake on December 27, 2017 regarding the XOI:
“Assuming that the primary movement is still a bear market, then the expected upside target should have been from 1,210.15 (3/8) to 1,313.37 (½). With the XOI above the 1,313.37 level, Dow Theory suggests that a bull market is on the way as the balance of losses sustained by the buyers near the previous peak is giving rise to optimism that breakeven on their investment is possible.”
We incorrectly interpreted Dow Theory in the belief that a bull market was on the way. It could be argued that as the prior peak was not achieved then a bull market wasn’t signaled and therefore the analysis was somehow right. However, we’d like anyone who uses both Dow Theory and Speed Resistance Lines to know that it is the interpretation that is incorrect and generally not the tools.
XOI Index: 2008 to 2020
The descending 575.41 level on the XOI Index is the equivalent of 375 (it continues to decline over time). That will likely be the point when the XOI bounces. From the 375 level it is uncharted territory. However, that is the point when values will come into play and investment can be done with relative abandon. Keep in mind the effort for many countries to phase out oil consuming vehicles.