Too late to turn bullish on oil?

Although the media has "turned bullish" on oil, I wonder if this sentiment is a sign of a short term top.  I think the OPEC news is largely irrelevant.  We are awash in oil.  From a technical perspective, both WTI & Brent are approaching short term overhead resistance.

How much is oil worth?

How much is oil worth?  In my opinion, much less that its current price.  As illustrated above, the price of oil does not have a definitive long term price trend.  Analysts will often use supply and demand data in order to forecast the price of oil as they do with gold and other commodities.  They do not, however, take into consideration how technological evolution not only affects oil exploration, but oil usage.  Is it reasonable to assume that the world will consume more oil in the future than it does today?  I think the price of oil is based on approximately 75% public psychology and 25% current fundamentals.  It is short sighted to suggest that over time, a better technology won't replace oil as a primary source of energy (ie. solar).  Oil, other commodities, bonds and real estate tend to go up in price when global stocks are not (i.e. during a secular bear market).  We're now in a secular bull market for global equities that probably began in 2012.  Expect most commodities (including oil) to fall in price.  Based its historical price, a barrel of oil is probably worth around $30.

Major European Indices Near End Of Secular Bear Market

As the three above charts show, returns on the big 3 European ETFs have been essentially zero for the past 15 years.  This is typical of a secular bear market, zero return with extreme volatility throughout.  I think the picture going forward will be quite different.

Germany (EWG) is pushing up on resistance established at the 2000 peak, the breakdown period in 2007-08 which lead to the global financial crisis and the 2011 peak established prior to the European Debt Crisis.  We could see some more sideways movement before finally moving higher but I think the lows are in.

France (EWQ) is sitting on major support established in 1998-99, 2006 and more recently in 2011.  The United Kingdom (EWU) has a similar chart.  Both are sitting on key Fibonacci retracement lines.

https://en.wikipedia.org/wiki/Fibonacci_retracement

Big Pharma And Health Care Stocks Enter Year II Of Secular Bull Market

After a long, dark 10+ year secular bear market for mega cap drug companies plagued with expiring patents on blockbuster medications, a new secular bull market has now emerged.  We are currently in year II of the massive uptrend if you consider that XLV posted new multi-year highs in 2012.  JNJ is the ultimate bellwether for the health care sector and is also well on its way to higher highs.  Other mega cap drug companies (PFE, MRK and BMY) are nearing their old 2000 era highs now.  They will likely pause before smashing through these levels in the coming months (but one can never be too sure).  The biotechnology companies are leading the entire health care sector and will likely dominate the industry in the years to come.

VIX

The volatility index (VIX) remained above 20 for most of the period between 1998 and 2003 during which time the technology boom completely unwound. The VIX spiked above 20 in late 2007 when the financial crisis began and has remained elevated since, dropping below 20 only briefly. It currently stands at 27. If history is to repeat itself, we may have a while to go before the VIX falls and remains below 20 for an extended period of time. This may be many months away but would indicate that confidence has returned to the equity markets for the long term and that a new bull market has truly begun. We are likely to experience sideways or range bound trading in the meantime.

Market Drift

2004 through 2005 was a relatively boring time for the stock market. The S&P 500 stood at ~1150 give or take a few points at the beginning of 2004 and stood at ~1250 a the end of 2005. This resulted in a mere gain of ~4% per year for this 24 month period. I realize that this is much better than the ~50% decline that most markets experienced in 2008, however, modest returns and normalcy in the market tend not to excite investors.

As the slow recovery in the US continues, the markets over the next year or two will probably provide less excitement than we've been used to lately. It is possible that the S&P 500 simply moves sideways or delivers very modest gains as extremely high unmployment in the US continues to wear investor confidence and dampen consumer spending during this slow recovery period. After the very deep 1973-74 bear market / recession, the S&P 500 traded in a sideways fashion for approximately 5 years.

Of course, there will be sectors or contries that will experience more than simply modest growth. From a technical perspective, several emerging market ETFs are still clearly in uptrends. The iShares Malaysia ETF (EWM) posted new 52-week highs today.