Tuesday August 14, 2012
Oil is the Most Emotional Market Around, and it is Stair Stepping Higher.
OIl is priced in US Dollars .The US Dollar is just beginning to give way, see UUP a few charts later. This looks like a set up to repeat 2008, not necessarily with a $145 oil price but one higher than $110. That would correlate with the CRB highs in 2000 and 2008, see last two charts for those time frames.
Here is the actual index on an hourly basis since June 1. It has been stair stepping its way higher. The market moves up above the ribbon of MAs, then comes back to find buyers at a higher low-every time.
I have speculated that SPX would eventually break out to a new higher trading level. It has flirted with the round number of 1400 the last few days. But odds mount that the bears will be disappointed here.
The reason is that investors are beginning to abandon the Safe Harbors of bonds and the Dollar. The leisurely move is liable to become a rush, let's look. Remember money is now moving from the safe end of our Financial Hourglass to the risk end.
TLT cannot sustain a move over its 50 bar MA. Note the last hour Monday saw selling right at the 50 bar MA again. A daily close under 124 will turn the leisurely stroll out of TLT into a mass exodus. There are bound to be lots of stop sell orders under that level given the quantitative nature of trading programs.
Investors have clung to the US Dollar more stubbornly than the in bonds but the mood is clearly shifting here as well. Yesterday UUP did not rise above its 50 day MA. A close under 22.40 will likely do the same there triggering sell stops in those Dollar levels and buys in the Euro. We have noted that rallies in the Aussie and Loonie Dollars are well under way.
ON these hourly charts note that TLT and UUP are both trading under ALL their hourly MAs. On the daily chart note the SPX is trading above ALL of its MAs. All of this explains the lethargy in the very first chart, the SPX bullish Percent is having to smash through quite a few linebackers to make a sports analogy to score a first down.
Short Term Outlook
Major Averages are expect to top this Fall. Commodity plays will make final highs probably after Labor Day. All of this will usher in a repaet of the bear moves we saw from 2000-2002 and 2007-2009.
What will this look like, glad you asked? Let's hop in our time machine for a look back.
The Top in 2000
Many analysts attempt to call The Top in the markets. Here we once again demonstrate that topping is a process not an event. that is another way Mr. Market fools the participants.
Dow Industrials-Red Blue Line
SPX -Green Line
Commodity Research Bureau Index CRB - Pink Line
And os the Dow topped in January, and the dropped a whopping 2,000 points in a month!. Interestingly the SPX was in the same territory then as now, about 1400. It rallied from 1325 to about 1525. For those that find my suggestion that the SPX can go from today's 1400 to 1500, you might put this one on your refrigerator door, so to speak.
Meanwhile the CRB was putting in a nice upward move with no dramatic pullbacks. And then everyone piled in during April taking it to a new high. One tenet of socionomics is that
Extreme Expressions of Social Mood Tend to Occur Near the End of a Move. The action in all three indexes is a good example,
Market Top in 2007-08
As another saying goes, markets never do the same thing twice, this keeps the participants off-balance and leads of courrse to another famous saying, This time it's different, but of course it inever is. In 2007 the Dow and SPX topped about the same time in October. But again the Dow dropped 2,000 points from October to March. Meanwhile the CRB marched to a new high. This would culminate in $145 oil by July and $35 oil by Christmas, 2008.
So, in both instances commodity prices topped last, we are well positioned for a repeat of that episode.
Thanks for reading The Market Perspective.