Stocks, Oil, and Bonds

A barrel of oil bounced to over $ 60 Thu, which led to a steep sell-off in the stock market Thu and Fri, although oil pulled-back to around $ 59 per barrel, and closed at $ 59.84 a barrel Fri.

There are many reasons why oil prices are high, including a "higher price" for the potentially negative geopolitical events, the start of the hurricane season June 1 (which may affect refineries in the Gulf), the 4th of July holiday (which is the start of the summer driving season), and end-of-quarter window dressing (which oil prices and oil to keep). highest possible However, the most influential factor is stronger than expected growth of the world economy. Both the U.S. monetary and fiscal policy remains stimulating, and the global economy continues to grow at above-trend growth. Moreover, the financial markets are not the global economy slowed by negative "Wealth Effects."

The price of oil has a weaker influence on American producers, because the U.S. economy lighter (eg Microsoft products manufactures weighing little) has become. Nevertheless, the high oil price some negative effect on earnings, particularly producers of heavy products (eg in China, which is moving the Agrarian Revolution in the Industrial Revolution, as the U.S. of the information revolution in the Biotech Revolution) have. Also, U.S. productivity growth slows, which is negative for profit. On the consumption side, higher oil prices is a tax, because consumers substitute other products for more expensive oil. So, whether the prices of other goods fall. Consequently, a higher oil output growth and lower living standards rather than cause slow inflation.

The four charts below are same period daily charts of SPX (S & P 500), OEX (S & P 100), OIH (oil index), and TLT (long bond ETF). SPX (the largest 500 stocks) has outperformed OEX (the largest 100 shares) for several years. Currently OEX is relatively undervalued compared to SPX. The four graphs show the overall stock market (ie SPX and OEX) OIH and TLT generally brief rally. However, they can move in different directions in the coming weeks.

The first graph shows SPX fell to the congestion area (circle), which is a key short-term support area. SPX 1192 is also an important (support and resistance) level, for several months, although SPX closed at 1191 1/2. The price-per-Volume bar (on the left side of the graph) gives additional support at 1,180 to 1,190. Both the 50 day MA, currently at 1181 1/2 and the 200 day MA, currently in 1174, rising. Large resistance is in the low 1,200 s (psychological resistance at 1.200, 10 and 20 days MA, and the top of the congestion area). SPX has a bearish head and shoulders pattern so far this year. There are open gaps in 1174, 1143 and 1138, this summer may close. End-of-quarter window dressing by Don on Fri new district, and the July 4th holiday ma can next week bullish for the stock market.

The second graph shows OEX fell below the key support levels during the two-day sell-off, ie below the 10 20 50 and 200 day MAs under the congestion area (circle), and under the price-per-volume bar in the middle of the 560s. Next major support is in the low 550s, which is the middle of a previous congestion area. Major resistance at 564-567 (where there are multiple resistance points). In the past five years, the OEX to SPX ratio decreased from 57% to 47%, after an increase of 46% to 57% over the past five years. Moreover OEX behind SPX over the past two months. So, OEX is relatively undervalued compared to SPX.

The third graph shows OIH rallied from a little more than $ 84 to over $ 105 per share, while the oil rally from $ 47 to $ 60 per barrel. If oil is a $ 50 to $ 60 range, then OIH consolidate and fall to the mid-$ 90sa share. The fourth graph reflects the declining long bond yields recently (since moving TLT and long-term bond yields in opposite dirctions). The flattening of the yield curve recently predicting slower economic growth. Global economic growth is likely to slow in the next two years, as the world economy can not maintain above trend growth. Consequently, both the stock market and oil prices fall (ie SPX OEX and OIH). However, slower growth or slower disinflationary inflationary growth (ie stagflation) determine TLT.

Economic reports next week are: Mon: No, di: Consumer Confidence, Wed: Final GDP and GDP deflator Chain, Thu: Personal Income, Personal Spending, Unemployment Claims, Chicago PMI and the FOMC announcement, Fri: Construction spending, ISM Index, Auto Sales, and Michigan Consumer Sentiment. There are notable earnings reports only on Wed: ORCL RIMM GIS COMS Mon TON.

There can be excellent option trading opportunities next week. If the price of oil pull-back, OIH may fall, while SPX and OEX can bounce (though, in the longer term SPX OEX and OIH fall). TLT, after the FOMC announcement Don fall, because to maintain. Be balanced stance on growth and inflation Perhaps, it will OIH trade between 100 1/2 and 104 1/2, while in the high-OEX trades high 560s to 550s. TLT relapse may be one or two points, and major support is 93 1/2. A heavy producer eg X (U.S. Steel), which is beaten, may rise to a pullback in oil prices. SPX puts can be a buy in 1200. The Dow Industrials fell from 10,600 to less than 10,300 Thursday and Friday (The Dow bounced sharply from 10,000 two months ago). So, DIA calls to buy. There may also be an excellent opportunity to make profits, as calls are GIS profit.

 Forum Index Market Overview section for graphs.

Arthur Albert Eckart is the founder and owner of Peak Trader. Arthur has worked for commercial banks, eg Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds 1999-00. Arthur Eckart has a BA and MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has to maximize a comprehensive trading methodology using economics, portfolio optimization, and technical analysis and minimizing risks developed at the same time. This methodology has resulted in excellent returns with low risk over the past three years.