When the gold miners started their 150% run in January you could have known early in the run that something big was up by plotting the ratio of the GDX to GOLD. (See Chart 1). GOLD was also on a good run at the time so you didn’t have to be a genius to figure out that the producers would be benefitting. The useful information was that the stock price of the producers was running ahead of the increase in the price of the item they were producing.
Crude oil came off the bottom in February, about a month later than Gold, and although its ascent has not been as dramatic it was still worth performing the same kind of analysis. Were oil producers or oil servicers going to be the next big thing?
Chart 2 is the ratio of oil producers (XOP) to the price of Crude ($WTIC).
Chart 3 is the ratio of oil service companies (OIH) to the price of Crude ($WTIC).
Do you see the difference? Even as Crude is bumping against $50 per barrel the producers and servicers are still asleep. We’re not seeing anything like the run we saw with the miners and the price of Gold.
Some producers and servicers have been pretty good swing trading vehicles over the past few months but it’s looking like they are not going to be the Next Big Thing.