Seasonality of the OSX - Oil Services
Oil that is, black gold, Texas tea
With the attention on oil and oil related equities, we thought it made sense to review our seasonality work on the PHLX Oil Services Index (OSX).
The concept of our seasonality work is to track the price action over a 15 year period from 1990 forward. For stocks or indices with less data, we track the first full year of price data forward. Therefore, the OSX we track from 1998 to present.
Our first data point is the Cycle R which is Pearson's R. This statistical expression tracks the linear relationship between two variables. It ranges from +1 to -1, with a reading of +1 being a perfect match between the two variables while 0 would be no correlation and -1 a perfect inverse relationship. In the case of the OSX, the two variables are the seasonal cycles of 1999-2001 and 2002-2004 with the Cycle R equaling 0.56. This value means there is a seasonal tendency between the two periods.
Second, we then see how the OSX is trading in 2005 against the entire period of 1999-2004. The relationship between 2005 and the entire seasonal pattern again is compared again using Pearson's R and this number, 2005r equals .15. Again, there is a correlation albeit not really strong eight months into 2005.
Last, we have optimized the OSX to get the best statistical relationship. The yellow sections are the statistically strongest periods and the brown are the weakest periods. A minimum of 14 days of over or under performance is required for the yellow or brown shading to appear on the chart. The end result is we are finishing a strong period for the OSX and about to enter a period of weakness until late September (not advice).
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