- New Science in old markets -


Our advice and trades have all pointed in the same direction for about a week - to seize the moment and stand against the panic. This has meant 'sell bonds, sell yen, sell gold, buy stocks'. The missing ingredient has been energy and now we look at the oil and other energy markets.

Stocks have been 'ticking' with oil for some time. The correlation is not close when the daily or weekly numbers are crunched but there is an undeniable tendency for US equity index futures prices to go up and down in step with crude for lengthy intervals on most days so there is clearly a sentimental connection if nothing else. This kind of 'unconnected connection' between markets is not unusual and can persist for months - soy beans and silver connected in this way in the late 1970s and there have been plenty of other examples since then. It doesn't mean there is any 'real' connection between the causes of either market but it is undeniably a feature of daily market life.

So if we are bullish about stocks are we also bullish about oil?

Yes, we are a bit. Sentiment in the oil market is ultra-poor as it has also been in stocks. We have longer-term signals that indicate a turn-around from down to up in oil - there have been monthly and weekly-scale bottom extensions:

WTI mthly, Brnt wkly exts

and some daily-scale bottom extensions on or near the lows of January 20th. Natural gas has also made fairly new weekly bottom extensions:

Crude dly btm, NG wkly

This daily crude signal has actually expired, being 21 day days old (they have a median shelf-life of 17 days) but it did mark the low point that has just been re-tested in the last few days so there is still some information contained in it. The situation in natural gas is clearer, where a series of weekly-scale bottom extensions marked the start of rallies of various strengths and now the lows are being tried again. the weekly gas signal is still 'in date'.

Granted the longer-term monthly-scale signal shown at the top and the series of weekly bottom extensions shown here, we conclude that bounces are again likely in energy markets. They remain semi-controlled, semi-free markets where our signals don't work as well as in an unrestrained environment and politics will determine the next big moves but still bounces are likely. Buy small amounts of Crude or Natural hereabouts (on weakness if available) and don't risk much.