Theoretically This Stock Market Can
Go Up Forever - Keeping an Eye on Oil.
By Joe Duarte on September 17, 2017
This bull market has been fueled by record low interest rates, the
mother of all walls of worry, and the machine like precision of robot
algorithm trading programs. Thus, if it were a theoretical physics problem
a case could be made that until these conditions change, the current
direction of prices can continue indefinitely. And even though most of
us live in the real world, and we know, deep inside, that this market
can’t go up forever, last week showed anyone who could see that it most
certainly went up to record highs yet again, while momentum seems to
be picking up.
Be that as it may, as the stock market does whatever it’s going to
do, it’s hard to argue with the fact that owning stocks is starting
to get expensive. Regular subscribers and I have been building up positions
in oil over the last few weeks. And as the seasons prepare to turn,
I’ve dedicated the last portion of this Market Summary to the oil market
and why it could be a significant place to invest in over the next
few weeks to months. Suffice it to say, even though I like the momentum
in the stock market, the oil market is starting to become very interesting,
especially if the winter season is anything like the hurricane season
has been so far.
Upside Momentum is Intact for Now
The New York Stock Exchange Advance Decline line (NYAD), the most
accurate indicator since the November 2016 market bottom made yet another
new high last week, suggesting the uptrend for stocks remains intact.
Indeed, in some of my recent posts, I’ve noted the eerie similarity
in the current NYAD patter to that which we saw in March 2017. And
so far, it’s almost a carbon copy of the tracing it made in March.
So if the robots continue to rule the roost, this rally should be in
place for at least a few more weeks. That said, the ride may be a bit
bumpy along the way given the slightly overbought reading on the RSI
indicator and the big move in the ROC toward the top of its trading
range. Nevertheless, the burden of proof remains on the bears.
S & P 500 Confirms New Highs
The S & P 500 (SPX) made a nice new high to confirm the action
in the NYAD, giving this market the go ahead to move higher and raising
the bar for the bears. SPX still has a few more up days to go before
any indicator gives an overbought reading.
The caveat on the stock market is what may be lurking
in the mind of the Federal Reserve. If they continue along the current
path, we are likely to see little change in policy. This would argue
for higher stock prices. If there is a meaningful change in the Fed’s
policy and actions, it could well be the catalyst for a meaningful
Beyond Stocks: Watching the Oil Market
Aside from the S & P 500 delivering some nice gains, the action
in the oil market has been showing some improvement of late. I’ve been
increasingly bullish on crude oil and have made several oil related
recommendations to my subscribers. Perhaps the most interesting aspect
of this recent price improvement in oil is how quiet it’s been.
In fact, the stock market has been getting all
the headlines, but the price of West Texas Intermediate Crude (WTIC)
has risen nearly 19% since mid June. And it has done so by, you guessed
it, climbing a wall of worry. The news has been full of articles about
OPEC’s potential demise, and to some degree the political problems
in Venezuela and Saudi Arabia have been largely ignored. Moreover much
of the coverage has been about the U.S. frakking dynamic, and predictions
that it’s on its way toward the end of its meaningful shelf life. But
if price is the only truth that matters, and it is from a trading standpoint,
as long as the bad news about oil continues, the better the price is
likely to get.
Note WTIC is nearly at $50 and testing the 200-day moving average.
If prices start to move above these two key technical resistance areas,
I expect the price of crude to move toward the $52-$54 area over the
next few weeks. For one thing, there are still some hurricanes out
there, which could disrupt supply, and for another, the potential for
an early or a colder than expected winter is worth considering. This
is especially noteworthy, given the vicious hurricane season we’ve
had. Any type of colder than expected weather would increase demand
for heating oil, and perhaps natural gas. Presently, supply disruptions
and their effects on prices are fresh in my mind, as I’ve had a difficult
time finding premium gasoline after hurricane Harvey hit Houston.
I admit it. At this point I may be early in thinking about winter
oil supplies, as there has been little mention of the status of the
supply of heating oil. The next U.S. Energy Information Agency Forecast
due out on October 11, 2017. Yet, over the years, I’ve learned it’s
never too early to start looking for future trading possibilities.
Only one thing is certain in oil, prices move more on supply than
demand. So, if there is any decrease in supply, for whatever reason,
prices will move higher. Now, if there is a supply crunch, and demand
starts to rise, you have the potential for an explosive situation.
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