I posted this pattern originally back in 2019 which showed the relationship between sharp drops in crude oil prices and the resulting support levels created in the stock market, as measured by the $SPX500 S&P500 Index.
Crude oil has basically gone sideways over the last 40 years when adjusted for inflation and when you factor in efficiency in that we get 22 mpg on average now in our vehicles vs closer to 10 mpg back in the early1980's. Essentially, the price of oil has only kept up with inflation.
When there is a spike in crude oil, it sets the seeds of its own destruction. We figure out how to use less and save more and find more oil. In this latest spike, there is a strong move again to save in the form of solar panels, battery storage and natural gas. Time will tell how the current pattern pans out.
The historical pattern suggests downside risk of 30%-40% for crude oil and upside of 200% which is a decent 10 year risk/reward ratio. If crude oil falls 20% from current levels near $84/barrel on 9/22/22, the risk/rewards gets extremely attractive as it drops to down 40%. The upside potential becomes 400% and the downside risk is 10% or less at that point.
Stay tuned!
Tim West
Key Hidden Levels Chat Room - Time@Mode Method specialist
Crude oil has basically gone sideways over the last 40 years when adjusted for inflation and when you factor in efficiency in that we get 22 mpg on average now in our vehicles vs closer to 10 mpg back in the early1980's. Essentially, the price of oil has only kept up with inflation.
When there is a spike in crude oil, it sets the seeds of its own destruction. We figure out how to use less and save more and find more oil. In this latest spike, there is a strong move again to save in the form of solar panels, battery storage and natural gas. Time will tell how the current pattern pans out.
The historical pattern suggests downside risk of 30%-40% for crude oil and upside of 200% which is a decent 10 year risk/reward ratio. If crude oil falls 20% from current levels near $84/barrel on 9/22/22, the risk/rewards gets extremely attractive as it drops to down 40%. The upside potential becomes 400% and the downside risk is 10% or less at that point.
Stay tuned!
Tim West
Key Hidden Levels Chat Room - Time@Mode Method specialist
Comment:
We are right on top of the blue-line "guess" from 2019 here on September 18th, 2023.
Interesting this is a year since my last update of this chart (Sep 22, 2022)
We are right on top of the blue-line "guess" from 2019 here on September 18th, 2023.
Interesting this is a year since my last update of this chart (Sep 22, 2022)
Comment:
The important point to remember is that falling crude oil prices have a lagged effect on the overall equity market. How long is that lag? It changes over time but it is approximately 6 months.
When oil prices rise, it too has a lagged effect on the market by a variable amount of time. Of course, it depends on many factors, regulatory and global risks constantly change.
Oil prices are the most-watched price since we see them on gas station signs everywhere we drive and yet it doesn't have instant impact on the economy.
Look at the history of the price of crude oil and the price of stocks. They are related as you can see when I plot the large drops in crude and the price level of stocks when that drop occurred.
Tim. 9/18/2023 10:13AM EST
When oil prices rise, it too has a lagged effect on the market by a variable amount of time. Of course, it depends on many factors, regulatory and global risks constantly change.
Oil prices are the most-watched price since we see them on gas station signs everywhere we drive and yet it doesn't have instant impact on the economy.
Look at the history of the price of crude oil and the price of stocks. They are related as you can see when I plot the large drops in crude and the price level of stocks when that drop occurred.
Tim. 9/18/2023 10:13AM EST
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Here is the link to the original chart with much more detailed information for your review.