What is oil going to tell
us?
Stocks opened to the downside yesterday
as the retail sales report came in lighter than expected, but by the close
the buyers stepped in again and the indices picked up decent gains.
The dollar did pull back from the resistance we talked about
yesterday,
helping the I-Fund to a solid 1.6% gain; about twice that of the C and S
funds.
The S&P 500 continues to ride the resistance lines. The trend
remains up, which is making for a rising trading channel (also, a rising
wedge) so the resistance is rising, but the November high resistance is
still holding in the 1010 area.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
Here's another look at some smart money / dumb
money readings from SentimenTrader.com. The dumb money is shown as the
AAII bullish percentage. You can see that there is an extreme reading
as it is over 50% for the first time since early 2008.
At the same time some smart money, as shown as a buy / sell ratio of
corporate insiders, is selling (the negative numbers means they are selling
more than buying). The last time we saw a reading this negative, was
back in late 2006. However, the market did continue to rise for
several more months that year, so they may not have picked the top, but they
were certainly seeing something on the horizon.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
Oil has been rising as the dollar has been falling, and the chart has now
formed a short-term cup & handle formation. You can also say that the
cup of the short-term cup & handle, is the handle within a larger cup &
handle.
Chart provided courtesy of
www.decisionpoint.com, analysis by TSP Talk
However you slice, this is a bullish formation for oil. A break over
the $75 could produce a significant rally.
If that happens it will present an interesting situation for stocks.
We know that higher oil prices would put another strain on consumers.
Some people believe that the oil bubble of 2008 was a major contributor to
the economic slowdown.
On the other hand, rising oil prices can be a good indication of economic
growth. If people are using more oil - driving more, companies
shipping products at an increasing rate, etc., and global demand for oil is
rising, it could mean that the economy is picking up steam.
There are times when the stock market seems to move in unison with the price
of oil, and other times when it fades it (goes in the opposite direction).
If it remains within its recent $60 - $75 trading range, anything could
happen to stocks. But what happens to stocks if oil breaks above $75?
That remains to be seen.
By the way, the TSP Talk
Sentiment Survey System is switching to bull market rules this week, now
that the 50-day EMA is above the 200-day EMA on the S&P 500 chart. The
system officially remains on a sell signal, but as long as the 50 is above
the 200, the bulls to bears ratio buy signal is anything under 1.25 to 1,
instead of the bear market rule of 0.50 to 1.
That's all for today. Thanks for reading!
Have a great weekend!
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