Say Goodbye to Cheap Oil

Wednesday Jan 10, 2007

Say Goodbye to Cheap Oil

By The WaveStrength Team

Macro Outlook

“Those who think that winter 2006-2007 is going to remain mild are in for a shock. Winter is likely to come with a vengeance. A week from now, we'll start seeing truly cold air across much of the country, and we expect this change to last.

“Whether we end up with seasonably cold weather, or something far worse, remains to be seen. There are indications that this winter could parallel severe winters of the past.

“Even should we not see an extremely cold and snowy conclusion to winter, you can be sure that by the end of the month, when those in the Northeast are shoveling out their driveways and sidewalks, the mild weather we're experiencing now will be a distant memory.”

- AccuWeather.com Chief Long-Range Forecaster Joe Bastardi

It's all about El Nino folks, and the “little boy” is about to bite the northeast on the er ah, “tail.” And when it does, you can say goodbye to cheap oil.

More tonight...

Market Trends

On November 22, in Market Report, I made the following observation about the restaurant industry during the holidays:

“Well, the Cheesecake Factory Inc. (CAKE:NASDAQ) (one of my personal favorites) is selling pumpkin cheesecake and pumpkin pecan cheesecake. In fact, CAKE's daily chart is exceptionally strong. It's increased 32.57% since August of 2006, and is about to cross above its 200-day Moving Average for the first time since it broke below it in April 2006.

“Over the course of the holidays, I would expect CAKE not only to receive countless orders for its cakes and pies, but also to welcome more patrons for dinner. CAKE looks like a great holiday restaurant buy at current levels under $30 per share.”

Yesterday, CAKE announced that its preliminary fourth-quarter report shows 18% year-over-year growth. Same-store sales growth came in at 0.8% with revenue of $360.4 million for the quarter.

Although CAKE dipped all through the holiday season, it's back to $27.16 per share, still offering a fantastic buying opportunity.

Trading Tactics

Another day, and another drop in crude oil prices. Prices are once again falling this morning - down to $55.03 a barrel - in advance of the weekly supply data out later this morning. The expectation is that oil supplies will show the first inventory increase in seven weeks.

The volatility in oil prices has been substantial in 2007 - highlighted by yesterday's action. As you know, oil fell sharply in the morning - rebounded around mid-day - and then fell back down to close the session. Yesterday's closing price, in fact, was oil's worst closing level since June 2005.

The big question is: What level will be the oil price support point?

Back in 2006, buying oil on any dips under $57 per barrel proved to be very profitable. With prices now dipping under $55 (on an intraday basis), what will be the “buy point” for oil in 2007?

We've got to be getting close - but let's see how the supply data affects prices.

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