It has been a wild ride for crude oil this year so far. After falling more than 80% from its all-time high and being caught in a historic bear market, it finally bottomed near $26/barrel in mid-February and has since been one of the strongest performing assets. Helped by the surge in crude, equity markets and credit markets have been on much firmer ground as well.
Crude recently closed at a new 52-week high for the first time in more than three years! In fact, according to Bloomberg data dating back to 1983, this was the second-longest streak ever for crude oil without a new 52-week high. Looking at the 10 longest streaks for crude oil without a new 52-week high, the returns after achieving the new high are rather strong. Up 6% on average three months later, 15% six months later, and 22% higher a year later—the future could potentially be bright for crude oil.
Last, crude oil is potentially forming a very bullish “inverse head and shoulders” pattern, which could suggest much higher prices as well. (As the names suggests, a head and shoulders pattern looks like a head with two shoulders. There is one major peak, surrounded by two smaller peaks, and these patterns are used by technicians to find major changes in trend.) Crude oil is near the neckline and should it be able to separate from this area, this could lead to continued strength.
Summing it up, Ryan Detrick, Senior Market Strategist, observed, “The stabilization in crude oil is a big reason for the turnaround in equity markets this year. When crude was crashing it caused instability and massive volatility in many global markets; now with crude improving, it has brought with it a good level of calm. The improved technical and fundamental backdrop in crude oil continues to suggest potentially higher prices as we head into next year and further out.”
For more of our thoughts on energy policy, but sure to read our Weekly Economic Commentary due out later today, as we examine the reality of U.S. energy consumption and the changing economics of energy production.
Background on Technical Analysis
In its basic form, Technical Analysis is the study of past market data, primarily price and volume data and how this information is used to make trading and investment decisions. The overarching principle of Technical Analysis is that the market is always correct, and all factors that impact a stock’s supply and demand are inclusive of and depicted by the company’s stock price.
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor Member FINRA/SIPC
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.
Tracking #: 1-548262 Exp. 10/17