Carnival Cruise Line (CCL) and Oil—Has the Trend in Crude Oil Changed?

02/25/2009 10:38 am EST


One of the more important questions with regards to the markets is whether the dominant trend has actually changed. While there are obviously any number of trends that we could argue were or are "dominant," the one that we are referring to today revolves around the relative strength for crude oil prices.

Around the end of 1998, with crude oil futures prices pushing down towards $10, the ratio between the CRB Index and crude oil prices reached a cycle peak. In other words, this was the low point for crude oil prices on a relative basis. From 1998 into 2008, the trend was dominated by strong and rising crude oil prices. Investors learned through experience that oil and gas stocks should always be bought on corrections.

Below, we show a chart comparison of the ratio between the CRB Index and crude oil futures prices and the stock price of Carnival Cruise Lines (CCL).

The point is that CCL tends to trend with the CRB Index/crude oil ratio, which simply means that it does best during those periods of time when growth is positive but not concentrated in energy price strength. When the CRB Index/crude oil ratio peaked through 1998, this marked the end of the positive intermarket run for CCL even though the stock apparently didn't realize it through much of 1999.

Below we have included the same chart comparison for the current time period. The chart shows that the CRB Index/crude oil ratio finally made a bottom through 2008, which suggests that the intermarket trend for CCL has finally turned positive.

The problem today is almost exactly the inverse of what transpired through 1999. In 1999, economic growth was strong enough to keep CCL's share price from declining even as energy prices began to ramp higher. In 2009, economic growth is weak enough to hold CCL near the lows, even as energy prices weaken on a relative basis.

So the question is: Has the trend changed? In other words, did the CRB Index/crude oil ratio bottom in 2008 in the same way that it topped in 1998, because, if it did, then CCL would represent one of our best ideas for the days ahead.

By Kevin Klombies of

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