Tuesday, November 8, 2011

A Sign of U.S. Expansion

The chart below is the price of West Texas Crude, and you can see that the price has been climbing since the beginning of October. In fact, crude prices are up an amazing 28% in just over 1 month. Many analysts believe this is evidence that the United States has avoided a recession, and that the economies in China and Germany will be much stronger than expected from this point forth.

It is hard to deny the strength in oil right now. The price has risen above its 200 day moving average ($94.87) today after breaking the downtrend line from May to September. The price found little resistance at the 50% retracement level, which was also the same level as the 200 day moving average, and is now moving to the 61.8% level at $100 per barrel.

While this is definitely a good looking chart, I'll still be watching the U.S. equity market for further signs of strength. The S&P 500 and crude oil has been extremely correlated recently with a 95% correlation since July. The S&P 500 is now testing its 200 day moving average as I write and if the stock market fails at this technical level again, I don’t think there's much hope for oil to rise further. And that will help quiet the Avoided Recession camp.