XEG , the big picture

xeg july 11 2015 bxeg jul 11 2015

The way to analyse a stock, ETF, or whatever by way of EW, is best done by looking at the BIG picture first and then drilling down into the detail. In some situations that does not apply. For instance if a particular minute pattern stands out and sort of “anchors” the blue sky of the puzzle around it. When you do that with the XEG the immediate bull case becomes so much more credible.

    This iShare ETF is managed by Blackrock, they do iThinking. When I iThink I often get into trouble. This ETF is capped, usually that means that each participating stock in the ETF is either equally weighted, or, at the very least, is given a weight that is less than its capitalization would warrant. Here are the first 10 out of 52 holdings according to the website;

xeg holdings

Maybe I did not drill down deep enough but if the top ten constitute 65+% of the total I am not sure how the capping is done. In any event the symmetry in the charts as measured over the past 4+ years is absolutely striking. It suggest the entire move, that is the two down legs plus the intervening up leg Sleeping half-moon are all part and parcel of one single move which appears to be complete. The implication could be that starting from the top we have a failed double zig-zag down. Alternatively we could be making a huge triangle (see red insert) and are now  in wave C of that formation. Both are positive for the near-term. Long-term the triangle is negative. SU, Suncor, the largest constituent in this ETF still looks awful ( see next and previous blogs).

XEG, iShares TSX capped energy

xeg apr 28 2015

It is not often that you get a clean, unambiguous, 5-wave sequence. This certainly looks like one. Furthermore, subsequent to hitting a low in December of last year, this iShare has rebounded in what, at least to this point, looks very corrective. Perhaps to $15,95 to meet the 200 day moving average might do the trick. This would fit well with our outlook on crude oil that should retrace to about $60 in our opinion (see latest blog). As 5 waves never stand alone we would normally expect a continuation downward. Normally is the right choice of words as when we look at the bigger chart picture one could argue that the above 5 wave sequence is actually the second drop in a pattern that started a few years ago.

XEG april 28 2015 b

The big drop from $29 to $11 of course corresponds with the drop in crude from $143 to $31 or so. That was wave A. Following that you should get the standard a-b-c rebound which seemed to be complete early in 2011 having retraced about 2/3 of the original drop. Wave C down should have started and , being a C wave it must subdivide into 5 waves. So far it definitely has not done that which may warn that something else is going on. One possibility, and this is not all that farfetched, is that the a-b-c was not complete and become a lot more complex. The 4 year pattern, from 2011 to 2014, is very symmetric and could, perhaps, be viewed as the b in a more complex a-b-c. That could imply that we are now in c up towards, say, $23/$24. Only then would the big C down start.

   A war between Saudi Arabia and Iran, which is already going on in Yemen, could easily escalate and, if that were not enough, could block the two straights through which a good part of the World’s oil travels.  For the sake of the argument let’s suppose that “conflict”is quickly resolved, but at the same time the World falls into a serious recession and also becomes more aware of alternative energy sources. The electric car becomes a workable alternative and GM announces in 2018 that it has just built the last 4-cylinder internal combustion engine! Who knows but energy is not all that clear right now.