Oily Volatility Remains

March 29, 2007
By seadmin

Since last week’s Alert, we’ve seen a marked spike higher in oil prices. As I write this report, the price of a barrel of crude oil is trading above $64. We have our "friends" from Iran to thank for ratcheting up the hostility in the Persian Gulf that kicked off this latest surge in oil prices.

If you’ve had to put gasoline in your tank of late, you already know first-hand the effects higher crude prices are having on your own pocketbook. Gas now is at more than $3 a gallon nationwide. In Southern California where I live, we’re paying over $3.50 a gallon for gasoline.

In the above chart of the Energy Select Sector SPDR (XLE) — an exchange-traded fund (ETF) that contains the biggest energy companies — we can see that just a few weeks ago we bounced off the 200-day moving average (red line) and then quickly broke above the short-term 50-day moving average (blue line). This surge above the 50-day moving average acted like a springboard to much higher values in XLE. And, we now are very close to the multi-year highs we set in December.

Things are quite the opposite, however, in the overall market. Take a look at the chart below of the Total Market VIPERs (VTI), an ETF that measures the overall price movement in the entire market.

As we can see, volatility reigned supreme in March, with wild fluctuations in the market that don’t appear to be over just yet. In fact, today the VTI fell below its 50-day moving average (blue line), which is a potential harbinger of more selling ahead.

The key support level in VTI now is the 200-day moving average (red line). If VTI continues to fall toward, or even breaks below the 200-day average, you will want to steer clear of nearly all segments of the market — except for investments such as XLE that are bucking the general market trend.

Right now, subscribers to my Successful Investing advisory service are profiting from an allocation to energy stocks via XLE. To find out how you can profit from this oily volatility, click here.

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