Friday March 1, 2019
Stock and Oil Prices Continue Lockstep
I’m looking at a five minute chart here and oil and the S & P are virtually identical the oil trade was just mirroring stocks.
Mark Waggoner, President of Excel Futures
This is exactly what we have been reporting the last few weeks. Let’s look at the big picture.
Crude oil and stock prices both peaked literally on the same day, October 3, 2018. Oil around $75 and DJIA around 26,600. Then prices tumbled into December 24m 2018. Crude dropped to $42 and the DJIA corrected over 4,000 points to 223,000. Since then both market have enjoyed big rallies. As I write this Friday morning March1, the DJIA has topped 26,000 again and oil prices have risen to just over $57. Unleaded gasoline futures have risenfrom$1.25to $1.75. That is a 40% increase since December.
As we have observed many times in this space, the media and President Trump in particular, do not understand this relationship. A stronger economy can afford higher energy prices. President Trump loves to brag about stock market increases. But it is unrealistic to think energy prices will stay low as the economy and the stock market expand.
However there is always a ‘but wait just a moment’ after such rapid price increases. Personal computers have made elaborate charts and statistical measures available to the mass of investors. Many of those momentum indicators appear to be topping out on the daily charts. Yes I have been reporting that as well for at lest the last three weeks.
I am viewing a chart of the XLE Energy ETF. It has hit resistance at its 125day moving average, trending sideways at $65. Its cousin the Energy Service XES is retreating from its 87 day moving average now around $11.40. As with unleaded gasoline it has risen 43% since December.
Hmm, how about the refiners? Valero VLO has risen $15 in this time frame and is now selling off, falling victim to declining momentum. The ETF CRAK is doing the same.
The Dow Transports are the real harbinger of the direction of stock prices. The Transports are falling back from the 200day MA of 10,564.
The small cap Russell 200 is doing the same. My conclusion is that we should expect some correction to the rapid stock price rise since late December. And given the high correlation between the two, expect the same for energy prices.
Gold prices have enjoyed a big rally since last August. A correction is taking place there from the high of $1,350. I look for a re-test of $1,300. We are only about ten bucks from that level now.
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