News surfaced Tuesday about stress on oil production from the recent temperature drop in the U.S. Because water is involved in oil production, it can freeze equipment, thereby halting the process. Does this mean oil will continue to increase in price from a temporary weather condition? Possibly, but, by looking at the weekly chart of United States Oil (USO), we can find an even better reason for higher oil prices to continue going forward.
First off, oil has been beaten down since the beginning of 2020. When traveling was basically cut off from the pandemic, the oil market suffered major losses. Furthermore, supply chain issues make oil production challenging to start back up, especially if oil companies are tight on cash from major yearly losses. Knowing this, we can assume that companies will be careful about how much they add to supply, as they now must sell oil for a fraction of the prices seen pre-pandemic. Additionally, the increase in U.S vaccinations fares well for travel, and in turn for oil.
We are not the only ones that expect growth in oil prices. Berkshire Hathaway recently took a 4.1-billion-dollar stake in Chevron (CVX). With that said, if oil runs into some roadblocks along the way, watching the transportation sector (IYT) can act as a guide for further strength in the oil sector.
On Tuesday, IYT broke to new highs along with the S&P 500, Nasdaq 100, and Dow Jones. If the transportation sector stays strong, this will further support the oil market recovery through this year.
We see support now in USO at 38.50 with 40 being the pivotal area. Resistance is above at 44.00.
In the latest edition of StockCharts TV's Mish's Market Minute, Mish covers another 25 top rated stocks that have reported earnings. Her analysis includes actionable advice, with a review from one of last week's picks, Gilead Sciences, Inc. (GILD).
Stocks to note are: DDOG DIS SPG FOXA MAS MAT THC YELP TM KO GM CME Z ORLY TEVA ZNGA VRM SONO IRBT PEP DUK NET HUBS GNRC CYBR
- S&P 500 (SPY): New highs. 385 support
- Russell 2000 (IWM): 230 resistance
- Dow (DIA): New highs. 312 support area
- Nasdaq (QQQ): New highs. 330 support
- KRE (Regional Banks): 60 support
- SMH (Semiconductors): 246 support
- IYT (Transportation): New highs
- IBB (Biotechnology): Broke 168 support. Next main support the 50-DMA at 158
- XRT (Retail): Needs to clear 81.46
Mish Schneider
MarketGauge.com
Director of Trading Research and Education
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
