A Golden Opportunity for Crude Oil?

Crude oil has seen a record bounce in the past three months going back to the lows hit in February, on the heels of the worst bear market ever—but what could be next? Technically, things continue to look good, and on Monday there was potentially a very bullish technical development called a golden cross. A golden cross occurs when the faster moving 50-day moving average crosses above the slower moving 200-day moving average. This is widely considered to be a bullish technical development, while the inverse is known as a death cross (when the 50-day crosses below the 200-day).


This is the 24th golden cross for crude oil going back to 1983. Three months later, the average return is a solid 4.2%, but it then drops to 2.5% six months later, before a jump to 9.2% a year later. Going out further, two years later the average drops to 6.2%, with a flat median return. Nonetheless, the average return a year later for crude is 6.4%; thus, returns one year after a golden cross have been stronger than average.


Now here’s where things get interesting. This was the longest bear market ever for crude. In fact, crude’s 50-day moving average was beneath its 200-day moving average for 422 straight days—surpassing the previous record of 367 days in 1993/1994. Do things change after a golden cross when crude has been in an extended bear market? It sure looks like it. As shown in the table below, there have been three other times crude went more than 300 days without a golden cross and the returns after are very strong. Although there are only three instances, a return of 26% a year later—and positive for all three—is worth noting.


Crude (and the energy group overall) is one area we continue to think could potentially provide nice gains in the second half of the year, and this study helps confirm this idea.


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