Crude Oil’s Amazing Run

Global crude oil prices have climbed 46% since making a 12-year bottom on February 11th at $26. WTI finished $1.98 today to close at $37.90. This in just 16 trading days!

Crude oil has now spiked to the $38 level. A 46% spike in a little over 3 weeks is a bit much given that oil supplies and production continues to be at record levels but we rather expected central bankers to do this going into the spring time, especially with the income tax season before us and such a negative environment to start the year. The daily RSI value is now at 74%, with the daily stochastic at %K at 97 and %D at 92.

This in turn has been a huge support for the general stock market on an intermediate-term basis and has triggered a massive short covering rally in really some of the worst earning corporations.

Technical Picture Still Bearish

If you look at the S&P 500, it is currently down about 2% year-to-date, when fourth-quarter earnings are down 8% and that is the problem with this rally – it is unsustainable and will lead to the next dump soon, as we approach Q1 earning season.

From a technical perspective, we remain in bearish downtrend, though incredibly volatile as is typical of the first phase of a bear market.

In this weekly chart of the Russell 2000 index, we have a downward trending channel, with the Russell now having rallied today to its weekly middle Bollinger Band line. I suspect prices may get above this first resistance level to test the top of the trading channel in the typical five to six week intermediate-term advance but the next down turn will follow likely as earnings in mid-April are announced.

Prices are well below the 200-day moving average for this index, and for most other major indexes. Technically, I closely watch the trend of the 50-day moving average and it also continues to trend “below” the 200-day moving averages. For a real bull market to emerge, the 50-day day has to be trending above its 200-day moving average for an enduring upward advance. Otherwise we have to view even these impressive short covering rallies as intermediate counter cyclical advances.