Both the stock market and oil prices rallied recently, which seems to be a paradox, because high oil prices are negative for earnings (i.e. a higher production cost and a higher consumer tax). However, the stock market was worried about another "soft patch," of slower economic growth, and the sharp rise in oil prices suggest the U.S. economy is still expanding at above trend growth.
The two charts below are same period daily charts of SPX and OIH. The short-term technical indicators suggest SPX is near a top, e.g. VIX closing at a multi-year low, VXN closing at an all-time low, and the NYSE Oscillator's 20 day MA at an extreme level. Also, Nasdaq closed at 2,090 Fri, and 2,100 is major resistance. SPX rallied to 1,219.5 Fri, and 1,220 may be resistance. SPX may be creating a bearish head & shoulders pattern, with the left shoulder at 1,217.9, the head at 1,229.1, and the right shoulder at 1,220 (see chart). SPX may pullback, consolidate, and become more volatile next week. Major support is about 1,200, the current 20 day MA, which SPX held over the rally, and 1,200, in general, which is psychological support and a congestion area. Major resistance is at 1,220 and 1,229 (the recent high).
OIH closed at an all-time high and created a bearish hammer Fri. Major resistance is Fri's high at 104. Major support is at 100.30 (previous highs), and the 10 day MA, currently at 99 1/4. There's also an open gap at just below 95 1/2, and Jul Max Pain is still 95. OIH rose about 20 points, while oil rose from $47 to about $59 a barrel. Consequently, if oil falls to the low $50s, then OIH may retrace 50% of the 20 point rise. The steep rise (also, see MACD) suggests a consolidation period soon. Both the RSI and Oscillator (ULT) are severely overbought, particularly for an index.
Perhaps, the oil market has discounted future events that would influence oil prices, e.g. stonger than expected global growth, the start of hurricane season Jun 1st, which may affect oil platforms and refineries in the Gulf, end-of-the-quarter window dressing, and the 4th of July holiday, which is the start of the summer driving season. Also, I may add, the U.S. oil strategic reserve is filled up. So, the federal government isn't draining oil from the market. Moreover, China's economy is "overheating," and it's to China's benefit to grow at a sustainable rate, to prevent inefficiencies.
Next week is a light economic and earnings data week. So, oil prices may have a more influencial effect on stock prices. Consequently, SPX puts, for example, may hedge OIH puts. Both SPX and OIH are at high levels. Economic reports next week are: Mon: Leading Economic Indicators, Thu: Unemployment Claims and Existing Home Sales, and Fri: Durable Goods Orders and New Home Sales. Also, the U.S. weekly oil inventory data Wed should move oil prices. I believe, the positive correlation in stocks and oil will decouple next week, because the longer oil prices stay high, the more negative it will affect earnings of non-energy stocks. Arthur Eckart, PeakTrader.com
See PeakTrader.com Market Overview section in Forum Index for charts.
Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.
Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.
One of the great truisms of Wall Street is "Don't... Read More
Every day in any financial publication you will find the... Read More
Who are the successful investors?There are those who follow the... Read More
There is so much involved in developing peak performance, that... Read More
Mutual funds were created with the idea that one person... Read More
To begin, you might look at playing the stock market... Read More
If you have talked to a stock broker or financial... Read More
Stock trading remains a very competitive field and the stock... Read More
A PEG ratio cannot be used alone but is a... Read More
Right now there doesn't seem to be any "gold fever".... Read More
Suppose your position has made a big move and you... Read More
Let's hope you did not have any of the Enron... Read More
Invest in the stock market for the RIGHT reason, using... Read More
Robert Rodriguez likes to buy stocks at their lows. When... Read More
With the stock market stubbornly refusing to settle down and... Read More
If you were to find that you had some severe... Read More
There can't be many traders who haven't at least considered... Read More
The stock market has not been very kind to your... Read More
The Macedonian Stock Exchange (MSE) is not operating successfully. True,... Read More
When you stand on the ocean shore and watch the... Read More
There is no question that the stock market is being... Read More
When it comes to stock market trading it PAYS to... Read More
The stock market often closes a week in the middle... Read More
Every year I go to the Money Show in Orlando,... Read More
When is a dividend not a dividend?The latest thing "conservative"... Read More
I was recently interviewed for a press release through a... Read More
Inverted interest rates? What's that? Who cares? Even if you... Read More
The Winter Games for the Olympics are coming up soon... Read More
I use the P/E ratio as a secondary indicator for... Read More
I know there are a lot of you out there... Read More
Exchange Traded Funds (ETFs) are a group of passive index... Read More
Mutual funds were moderately successful in creating a presence in... Read More
The ABC's of Stock Trading SuccessStock trading success...why is it... Read More
An insane person cannot evaluate an insane evaluation system.As you... Read More
Every day I see in the financial section of newspapers... Read More
I often hear from people, "I don't trade. I invest.... Read More
I love roller coasters. The steeper the better. High and... Read More
I have watched my cat play with a bag of... Read More
The big bad bear is stirring again. So far he... Read More
Much like the middle child, mid-cap stocks have long struggled... Read More
Several times each month I am solicited by various market... Read More
In one of my previous articles (Investing in the stock... Read More
So you're started trading, you bought some positions with your... Read More
The Dow TheoryCharles H. Dow... Read More
You should ignore analysts on TV, the radio, the newspaper... Read More
You remember (they show it on TV every year) the... Read More
The World Bank claims that some two billion of the... Read More
Most stock market traders have a favorite technical indicator.The one... Read More
How can you dispel an illusion unless you look directly... Read More
The stock market has been in an up trend for... Read More
For the year 2000 we have seen hundreds of mutual... Read More
I have been trading for several decades and was an... Read More
It looks like we have now entered a new bull... Read More
The date October 13, 2000 will forever be embedded in... Read More
Never lose money in the stock market again. Yeah, I... Read More
Well maybe that's overstating it a little, but it's certainly... Read More
To become a successful trader you must have some kind... Read More
What a great statement!I just heard someone use it in... Read More
Now that you have some money burning a hole in... Read More
Invest in the stock market for the RIGHT reason, using... Read More
Cat or dog? Maybe Zebra. Shucks, I don't know, but... Read More
Wall Street has been preaching for years and years to... Read More
You probably have been told that options are risky. Even... Read More
According to Investopedia Inc. the penny stock market has seen... Read More
This article describes the model of a natural relationship between... Read More
Sometime around 1980, can't remember exactly, there was a flight... Read More
Stocks & Mutual Fund |