Can the U.S. survive $80 crude oil?
For the first time since September of 2007, the crude oil (NYME_CL) market has flashed a positive signal that it is headed higher. This is the first buy signal that we have seen in over 18 months in the energy markets.
The big question is, if crude oil is headed higher, how much of a price increase can the US economy afford and withstand?
Here is a raw commodity that is used by everyone and the US has no control over it. This key commodity to commerce just happens to be in areas that are normally hostile to the US. If we see a hiccup in the supply chain that changes this market dynamic, even for a short time period, we could see oil move back to the $80/barrel range in a heart beat.
So how will this affect the US equity markets? If crude oil heads back to the $75-$80 range, I expect that the major indices will head south. I call it the 551 syndrome. 5000 on the Dow, 500 on the S&P 500, and finally 1000 on the NASDAQ.
In this short video I will share with you the potential target zones we could see in the next 6 to 12 months in crude oil.
So with the trend in crude oil in a positive trajectory and the trend in the US equity markets in a negative trajectory, I think the two will feed off themselves. Look for traders and hedge funds to move aggressively in both these areas with abandon.
Lastly with no reinstatement of the up-tick rule, expect stocks to once again get pummeled to oblivion.
Enjoy the video and all the best in trading,
P.S. We welcome your comments and feedback on this and all the posts we make on this blog.
21 thoughts on “Can the U.S. survive $80 crude oil?”
Troy I would agree in many instances except this one. Now I agree there should not be a windfall profits tax, but these guys raking in windfall profits should be using their own money to pay for this, and when your raking it in like that why should prices be so high? You don't just charge more and if you are just to make windfall profits then maybe the tax is right? Tax credits should go to alt energy and oil co should get them if they are consolidating w/ alt energy or trying to create their own, but they make enough money to pay for their own exploration. Do we get tax breaks to find out if our businesses are feasible elsewhere?
Crude has a reasonable chance of dropping back into the low 30s or even mid 20s as the tankers come on shore, the producers ratchet up output domestically to satisfy bank debt by producing more at lower prices. There is no doubt that oil prices will go higher over the next 24-26 months. Removing the tax deductions form investing in exploration as proposed by the Obama cronies will in fact escalate the price and make it rise faster and more sharply. I have been in the business for 23 years. Get ready. America still has no respect for the capital required to bring a barrel of oil to market and how that risk is three times as high and the cost has been up 300-400% since 2005. Prices going up may be a trend but there is a strong argument that it could sink before it shoots up.
Thank you for your feedback. I think we will see some interesting divergences between crude oil which we have no control of and the equity markets which are still in my opinion in a negative phase.
Crude oil on the other hand has just entered into a positive phase. Whether this is going to mirror the equity markets on the upside it is hard to tell at this juncture.
If crude oil continues to trend higher then it is in essence taking money out pocket of the consumer. This will not be good for the economy which as you know is fragile at best.
We will be following our trade triangles signals and using those indicators as major timing signals.
All the best,
Today's action was very interesting, and although my feelings are mixed regarding the inevitable upswing in the price of oil, I'm concerned that the if the markets have another slide downward again, we might very well see the oil market follow suit due to a lack of demand.
Obviously your theory hinges on a divergence between oil and the Dow, etc. However, today seemed to show the same convergence that we've seen over the last year or so.
What can you tell as a result of today's trading if anything?
Has this trade already been negated, seeing as how crude has dropped so much the last 2 days, or is crude still considered a buy using your technique?
Also, I too disagree with your conclusions about the crude/DJIA relationship. For the last eight years or so, crude has been leading equities, and I do not see why you think that relationship will now be inverse.
Thank you for your feedback. Yes, this trade has been negated already for a loss of approximately $900. We a still looking to get in on the long side of this market when we see the appropriate trade triangle kick in.
I am not sure about the crude/DJIA relationship. All I know is that if the price of crude goes higher that would equate to higher prices at the fuel pump and it will be taking money out of consumers pockets. This is a very fragile economy and consumers are skittish about spending the money they have now. If the cost of transportation i.e. at the pump prices goes up, then consumers will pull back even further pushing the market down in my opinion.
Of course, this is just my opinion and if our trade triangles are headed up in the equity markets we will certainly be trading on that side of the fence.
All the best,
Can the U.S. survive $80 crude oil?
yes, but it will make it that much harder on the economy
last summer's $148 oil likely helped push global economy's over the edge
Thank you for your feedback and comment. Actually members of MarketClub have done extremely well in crude oil. You may want to look at our trade record in this market.
Here is the link:http://club.ino.com/trading/index.php?s=Q4
I'll let you decide whether you think this is a good track record or not.
All the best,
If the last time your indicator flashed a positive signal for oil was September 2007, then it would seem to have missed the big run up in 2008. How good of an indicator is this??
People, as a group or community, do not "just happen to be hostile..." It would be a great service to the world if the U.S. and Britain would understand this.
No, but it sure will help Obama's alternative energy plan and the fact he packed it in his stimulus bill.
Good insight. Thank you for your feedback.
Really nice comment. It really makes sense.
But a question came to me after reading.
What could happen to emerging markets, the brazilian market specifically, if this cenario come true?
Oil prices certainly influences these markets but is difficult to specify how this influence occurs.
Talking about the brazilian market, the oil prices may influence in 3 ways:
1-Indirectly: oil prices influence US market and the US market influence the brazilian market. (brazilian market depends on foreign investors)
2/3-Directly: oil prices influence brazilian markets as a cost to some companies (as Gol-GOLL4 and Tam-TAMM4) (negative correlation)(2) and as a income to some others (as Petrobras-PETR4)(positive correlation)(3)
Whats really difficult is to stabilish wich effect is stronger so its possible to determine the correlation resultant from the interaction of those forces.
Hope i'll find help.
Thank you for sharing your wisdom Adam.
May I ask how you think higher oil will affect the price of gold, and precious metals stocks ?
Do you think they will go down with the general market ? I remember in the past when oil went up so did gold, and gold stocks, but this market is so volatile it is hard for me to read.
As a Canadian, I would also appreciate knowing if the price of a subscription to Market Club is in US dollars only. I would like to subscribe, but the cost in Canadian dollars right now is rather high. I am enjoying your site, and learning. I have found all of your calls in the last few months to be very accurate.
That's a good question. Gold has been a bit of a conundrum for most traders this year. As you know we are technical traders and the technicals for gold so far this year have been somewhat disappointing.
Longer term, I believe the gold is headed higher, because of the amount of money that we are printing in the US. Eventually this will lead lead us into an inflationary environment. Having said that, I'm going to wait until the technicals for gold are lined up to confirm that thought.
Lastly in, the MarketClub subscription is in the US dollars. We would love to have you join but we do understand the currency spread between our two countries, and right now it is not particularly in your favor.
Hope to welcome you to the club very soon.
All the best,
From an emotional viewpoint ,I would agree that you would expect the market to react opposite to the direction of oil prices, however if you look at the charts of oil and the DOW you could lay them on top of each other and get the same picture. Simply put, as the commodity increases in price the associated dependent industries have to raise their prices to cover costs, thereby increasing gross selling price and pushing up stock prices. July of 2008 showed The DOW falling while oil kept climbing for another month and one half before chasing the DOW. It appears that oil on an upswing will pull up the DOW. The leading indicator seems to pass the baton as they attempt to reach equilibrium.Following some of your previous articles--follow the charts.
How do I trade oil, can I buy it store it and sell it later if so how? Or via an ETF ? If I buy via ETF e.g USO will it get 'pumelled' too?
great service by the way.
Thank you for your comments and feedback.
You can trade oil via an ETF. The ETF stock USO tracks to a fair degree what is going on in the oil market.
You might like to look at trading in oil futures on the NYMEX. This absolutely tracks the market.
I would caution you that the volatility in this market can be quite extreme. We have done very well trading crude oil with our Trade Triangle technology. I would use this approach along with the recommended stop and reversal strategy that we employ in crude oil.
I hope this helps you.
All the best,
You can buy an interest in a producing oil well by deed, lease or transfer. How much do you want to spend?
Not sure if you're buying or selling Clay? As for myself I'll be trading crude oil futures as that provides me with the kind of instant liquidity I like to see in a market.
Thank you for your comment and your ideas
Shorters do not cause prices to plummet. Sellers do!
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