Crude oil ($WTIC) was certainly in the news on Monday after a drone strike crippled Saudi Arabian oil production by roughly 50%. The immediate reduction in global oil supply was felt via a 14.68% surge in price to $62.90 per barrel. Obviously, that's a one-time type of event, but it comes when the longer-term trend in crude oil prices is higher. It's not unusual for geopolitical shocks to send crude oil surging - in both directions. Therefore, reviewing the WTIC on a daily chart is more difficult. So let's turn to the weekly chart to get an idea of what we might expect next:
I love defined channels and I think we have a pretty solid one here with the WTIC. Therefore, recent price lows near $50 per barrel represent excellent longer-term support, while the initial resistance hurdle lies near the 65.00-66.00 level. That 66 area on the chart is one of the most important, in my view. If we clear that level, the energy ETF (XLE) could finally be poised to lead the S&P 500 ($SPX) higher on a relative basis, something it hasn't really done much over the last 8 years:
So yes, crude oil surged yesterday and energy stocks performed exceptionally well. BUT....check out the impact that the rising U.S. Dollar Index ($USD) has had on the relative strength of energy. I see no signs of a drop in the USD. What could change that? Well, the Federal Reserve turning meaningfully dovish would be a definite start, but they've given no signs of doing that. They do start a two day meeting today with a policy statement to be issued tomorrow at 2pm EST. The bond and stock markets widely expect a 25 basis point decrease in the fed funds rate with a "wait and see" attitude on future cuts. Monetary policy, especially U.S. monetary policy vs. foreign policies, has a major impact on the USD. Cutting rates weakens the dollar. If the Fed comes across tomorrow as though they'll fully support additional cuts, we could see the type of drop in the dollar that could add to energy's strength on Monday.
Given the Fed's recent history, I'm not holding my breath for them to turn unexpectedly dovish.
Yesterday, I published my first "Daily Market Report" for EarningsBeats.com members. CLICK HERE to view a sample. It included a Monday Setup, along with market analysis, industry reviews, scans of my Strong Earnings ChartList seeking out potential trading candidates and much, much more! If you like what you see, please click the green "Join Today" button to start your $7 30-day trial.
Happy trading!
Tom
