Oil Hit Again, but Is This the Other Shoe Dropping?

06/07/2017 2:55 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

As oil stocks try to find a bottom, with everything else being the same, this move off the high may only get legs if that Andrews channel is broken, asserts Jeff Greenblatt, director of Lucas Wave International and editor of The Fibonacci Forecaster.

Oil has reached a critical juncture as oil stocks have been trying to find a bottom recently.

The other day the NYSE ARCA Oil & Gas Index (XOI) found a low at 1116 and 115 days down. Then it found another low at 117 days at 1114, both interesting vibrations. After each low was a green bar likely meaning some short covering with the better green bar on Tuesday (June 6).

But oil was hit hard on a bad fundamental report on Wednesday. Normally when a good square out/vibration is violated, that’s bad news for the reversal formation. However, in this case we see the price action on the weekly chart right on the bottom of the Andrews channel. This could be Custer’s last stand. Also take note the low in January of 2016 has a price of 867.47 with a high at 47 weeks. When it comes to cycle work, there is no such thing as coincidence.

chart

It might be helpful to think about the state of the oil chart itself. As of the close on Wednesday it was down 162 hours from the high on May 29. Now two weeks beyond the peak driving seasonality point for the commodity, this may be the key inflection point for oil for the rest of the year.

For the rest of the market, the S&P 500 Index (SPX) has stalled at 144 days off the low just prior to the election in November. Other key charts are consolidating off highs close to this window as well but the SOX is still making new highs. If we are going to pour cold water on anything it would have to be bank stocks. The KBW Bank Index (BKX) is riding the bottom of a range dating back to the middle of April. Heavily weighted Dow stock Goldman Sachs Group (GS) is not much better.

That sets the table for what some are calling Super Thursday which is the ECB rate decision, the UK election and the Comey testimony. Originally the market feared what Comey might say but leaks suggest he will stop short of implicating the president in scandal so that should be a non-event. Theresa May is still expected to win although that race is looking closer than many pundits expected, another non-event so it turns out the most interesting market reaction of the day could be the ECB which is expected to be dovish.

So, what should we make of this market? Not much. I know many would like to hear more but Transports was in danger of a serious breakdown just a couple of weeks ago. Like so many other times, we have a market where the crowd considered the abyss but refused to jump. It appeared the market viewed the Comey event as a sell the rumor buy the news but even that fizzled. Last week the jobs report disappointed at 138,000 but the market was resilient.

The Fed is still looking at a couple of rate hikes for the year. June is always interesting because of the seasonal change point but this seasonal change point is accompanied by golden spiral day on June 18, 6/18. Lots of trends tend to change around that time.

The biggest risk to markets is the implementation of the Trump growth agenda. While many were looking for fire because Comey threatened to bring the smoke, it’s likely to be rainout.

That brings us full circle back to the oil market. With everything else being the same, this move off the high may only get legs if that Andrews channel is broken.

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