Relationship Between Crude Oil And Oil Stocks

Although verification of the last week breakdown under important resistance line pushed black gold under $56, oil bulls didn’t give up and triggered a pullback. What does it mean for light crude? Will the relationship between crude oil and oil stocks give us more clues about future moves?

Crude Oil’s Technical Picture

Before we try to answer these questions, let’s examine the technical picture of crude oil (charts courtesy of StockCharts).

Looking at the weekly chart, we see that the overall situation in the medium term hasn’t changed much as crude oil is still trading in a narrow range around the upper border of the red gap created in 2015. Nevertheless, the current position of the indicators (the sell signal generated by the Stochastic Oscillator and one of the highest readings of the RSI and the CCI since the beginning of the year) continues to favor oil bears.

Having said the above, let’s examine the very short-term chart and find out what we can infer from it.

From the daily perspective, we see that Friday’s verification of the earlier breakdown under the upper border of the black rising trend channel encouraged oil bears to act yesterday. Although their opponents tried to push the commodity higher after the market’s open, they failed, which resulted in a drop below $56.

Despite this deterioration, the proximity to the green support zone attracted oil bulls and triggered a rebound – quite similar to what we already saw on Tuesday. Nevertheless, yesterday’s move wasn’t enough to push the price of light crude above the black resistance line, which means that as long as there is no invalidation of the breakdown below it, lower values of black gold are more likely than not – especially when we factor in the situation in the oil-to-gold and oil-to-stock market ratios (we wrote more about them on Wednesday and Friday).

Continuing to examine the relationship between crude oil and other elements of the market, we decided to take a closer look at the oil-to-oil stocks ratio.