-- Weekly Market Summary --

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 correction.

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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