jangseohee

Mixed relationship between Crude Oil & SPX

NYMEX:CL1!   LIGHT CRUDE OIL FUTURES
1881 12 20
Comparing the monthly chart of oil             and SPX             from the bear market context, i would classify it in 4 categories.

1st Category:
DISCONNECTEDNESS/INVERSE RELATION: (2 occurrences)

When oil             peaked out on 3 Sept 1990, SPX             actually made a bottom. the same happen on Nov 1996. There are the two period when inversely proportional relationship happened.
P.S. I do not care about the fundamental reason for this to happen, its purely on deciphering an observation from the chart.

2nd Category:
OIL             LEAD THE COLLAPSE WITH LOWER HIGH (1 occurrence)

This only happened once when oil             price made a lower high on Oct             1986 leading the SPX             crashed while SPX             was still making higher high.

3rd Category:
SPX             LED THE COLLAPSE WITH LOWER HIGH (2 occurrences)

On Nov 2000 & May 2008, SPX             made a lower low while oil             was still making higher high. Subsequently oil             prices collapsed due to divergence

4th Category:
COLLAPSED IN TANDEM (2 occurrences)
Feb 2010 & Mar 2011, both SPX             & Oil             plunged together on monthly chart.

Latest situation:
Oil             has made a lower low and collapsed while SPX             is still making record high, would this situation resolve into inverse relationship where SPX             keep going higher (1st Category)
or the divergence will take its toll on SPX             and pull it down? (2nd Category)

It remains to be seen...






AlphaxRx
2 years ago
Liked the chart!

As a reader, I would like to make a suggestion on further research on oil price vs dow transport. The decline of oil price has pushed up the airline stocks, which in turns boost the transport sector. Based on Dow Transport theory, it's an indicator to show the true strength of market. If the decline of oil price is indeed a precursor to SPX decline, transport sector is likely to show weakness as well... Just a thought.
Reply
jangseohee AlphaxRx
2 years ago
Thanks for your comment and reading! I appreciated it alot.

The question i posted is actually "will oil lead the crash follow by SPX or disconnectedness" mean there is a possibility that scenario 1 where SPX (including DJIA &DJTA) would follow by a crash OR scenario 2, SPX will continue to edge up higher disconnected with crash of oil price.

Yes, based on DOW theory, if you keep having higher high and higher low, market is always on the uptrend just like SPX etc. Then where does the next lower high and lower low comes? Fed knows. Did you notice that Transportation index just shown the ultimate weakness on Friday with bearish divergence in MACD & RSI ! Index was up almost 100 points but by 11.35am, an insurmountable Bear force came in and push all the way down, in the end it was a shooting star!
Technically speaking, there is a greater tendency for bearish action to happen than bullish with all the bearish elements in play, however, as we know that another QE program from Europe will again push the index higher, and the additional "free" money can be used to implement sector rotation again to keep all kind of indices higher, making it "euphoric" as what i deem the situation now.

You are also spot on when you commented that airline stocks benefited a lot from crashing oil price thereby boosting transportation sector as a whole.

Are you feeling that you are about to turn bull? Fed's ultimate intention is to make all the last bears turned bull and they can start the bear trend. Because more people are turning into chart, so they have their ways and means to manipulate the chart defy technicality to deceive the "dump money" but not me.

Big indices like DJIA, DJTA, SPX, COMP cannot crash overnight else investor will not have confidence to put money here. Hence by fabricating the pseudo confidence via low unemployment, good PMI...etc, things seems to be running fine on the surface, but for how long?

In fact, i should have compare oil price to ITOT (an ETF that sums up all indices in US market) :-)
Reply
AlphaxRx jangseohee
2 years ago
Sounds like we may have a interesting year ahead to say the least.

Keep an eye on IYT (dow transport). Showed reversal this morning. Railroad stocks are getting hit due to low oil price. Probably due to forecasting low volume of oil transport on rail.
+1 Reply
jangseohee AlphaxRx
2 years ago
last friday's shooting star did the job
Who let the bears out
Reply
jangseohee AlphaxRx
2 years ago
Hi AlphaxRx,
Ultimately, i thought not doing a comparison for oil vs dow transport is a good choice (you might disagree)
Because i must admit that there is a period of disconnectedness when oil start to tumble in July while transportation proceed to make new high (the "Fundamentalist" "explained that this is due to cheaper oil which renders their business more profitable) but they failed to specify that this only applicable to certain oil price range, below it the transportation will not get away from good thrashing

And you are absolutely right about it. And indeed DOW transport follows with a shooting star which i highlighted. Now they will offer another explaination on why cheap oil price didnt help DOW transport after all. The "weakness" that you thought is a divergence that materialized!! :-)

When i did this study for almost 2 hours, comparing oil with various indices, SPX seems to be the best representation. And seems like the oil crash leads to SPX's minor correction so far.
Reply
timwest PRO
2 years ago
I've done quite a few charts on the relationship of crude to the stock market. Have you seen them?
+1 Reply
jangseohee timwest
2 years ago
Hi Tim, please provide the link thanks
Reply
timwest PRO jangseohee
2 years ago
Crude Oil

Crude Oil
+2 Reply
timwest PRO jangseohee
2 years ago
https://www.tradingview.com/v/5Ujcx7v6/#tc118832
Crude Oil vs S&P500 Index - Headwinds vs Tailwinds
Reply
jangseohee timwest
2 years ago
S&P500 versus CRUDE - 1999 until today - weekly
Reply
you thinking early lag like 1985
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Killy_Mel
a year ago
I think disconnection is becasue there is no crisis in the States now against 2008 situation - current downtrend in oil is on other grounds...
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