March 07, 2013 at 09:12 AM EST
Which Way for Oil Prices & Economy?
Thursday, March 7, 9:15 a.m. Oil prices have been confined in a symmetrical triangle formation since 2011. The direction of a break out from such formations usually dictates the next direction for awhile. The direction of oil’s eventual breakout from the formation may have implications also for the U.S. economy. The price of oil seems [...]

Thursday, March 7, 9:15 a.m.

Oil prices have been confined in a symmetrical triangle formation since 2011. The direction of a break out from such formations usually dictates the next direction for awhile.

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The direction of oil’s eventual breakout from the formation may have implications also for the U.S. economy. The price of oil seems to track very closely with economic slowdowns and recoveries.

Note in the chart how when the economy slowed in the summer of 2010 and the Fed launched QE2, oil prices took off like a rocket, surging up 64%, from $70 a barrel to $114 a barrel eight months later in April, 2011.

Then oil prices began to plunge and the economy began to slow again into the summer of 2011. Oil prices had plunged all the way back to $75 a barrel by October. The Fed then launched ‘operation twist’, again adding liquidity to the financial system, and the price of oil reversed to the upside, reaching $109 a barrel six months later in March of 2012.

But oil topped out again in the spring of 2012, plunging to $78 a barrel, and the economic recovery stumbled again in the summer of 2012.

Oil rallied back to $98 a barrel in the summer of 2012 on hopes the Fed would come to the rescue again. When the Fed did not, oil prices fell back again until the fall when the Fed hinted at and then announced its QE3 program.

But this time oil only rallied briefly, rising to $98 a barrel in February of this year, and it’s been to the downside since.

The important question is whether it can bounce back and break out of the triangle formation to the upside, or by breaking out to the downside will indicate with another decline that the economy is due to stumble again this summer.

As a reminder of how these triangle patterns often work out, these are the charts of bonds and gold that were previously in similar symmetrical triangle formations that I began showing you several months ago, and how their rallies or corrections continued and accelerated after breakouts from the formation.

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The gold chart is particularly interesting since its shows three occasions when gold broke out of similar symmetrical triangle formations, and the direction of the breakout directed the next direction for a while, once to the upside, and twice to the downside.

To read my weekend newspaper column click here: Politicians Still Don’t Get It!

Subscribers to Street Smart Report: The new issue of the newsletter is in your secure area of the Street Smart Report website from yesterday.

And there will be an in-depth ‘Gold, Bonds, Dollar, Commodities’ update on the website later today!

Yesterday in the U.S. Market.

A mixed day on the last day of the ‘monthly strength period’, with volume remaining little changed from recent time, at 0.7 billion shares traded on the NYSE.

The Dow closed up 42 points, or 0.3%. The S&P 500 closed up 0.1%. The NYSE Composite closed up 0.2%. The Nasdaq closed down 0.1%. The Nasdaq 100 closed down 0.2%. The Russell 2000 closed up 0.3%. The DJ Transportation Avg. closed down 0.4%. The DJ Utilities Avg closed down 0.1%.

Gold closed unchanged at $1,574 an ounce.

Oil closed down $.42 a barrel at $90.40.

The U.S. dollar etf UUP closed up 0.4%.

The U.S. Treasury bond etf TLT closed down 0.9%.

Yesterday in European Markets.

European markets were mixed yesterday, losing some of their strength of recent days. The overall Europe Dow closed down 0.5%. Among individual countries, the London FTSE closed down 0.1%. The German DAX closed up 0.6%. France’s CAC closed down 0.4%. Ireland closed down 1.5%. Italy closed down 0.5%. Spain closed down 0.8%. Russia closed up 0.9%.

Asian Markets closed up strongly Tuesday night but mixed last night.

The Asia Dow closed up 1.1% Tuesday night and down 0.3% last night.

Among individual markets last night:

Australia closed down 0.2%. China closed down 1.0%. Hong Kong closed down 0.1%. India closed up 0.8%. Indonesia closed up 0.5%. Japan closed up 0.2%. Malaysia closed unchanged. Korea closed down 0.8%. Singapore closed up 0.2%. Taiwan closed up 0.1%. Thailand closed up 0.1%.

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Markets This Morning:

European markets are up this morning. The Europe Dow is up 0.9%. Among individual countries the London FTSE is up 0.4%. The German DAX is up 0.3%. France’s CAC is up 0.7%. Norway is down 0.1%. Portugal is up 1.1%. Spain is up 0.9%. Switzerland is up 0.3%. Italy is up 0.7%. Russia is down 0.1%.

Oil is up $.85 a barrel at $91.28.

Gold is up $8 an ounce at $1,582.

This Morning in the U.S. Market:

This week has an average schedule of potential market-moving economic reports including The ADP Monthly Jobs Report, Factory Orders, the Fed’s Beige Book, and ending with The Big One, the Labor Department’s Employment Report for February. To see the full list click here, and look at the left side of the page it takes you to.

There were no reports Monday.

Tuesday’s only report was that ISM non-mfg Index (service sector) rose some in February, rising to 56.0% from 55.2% in January, somewhat better than the consensus forecasts that it would remain unchanged.

Yesterday’s reports were that the ADP Jobs report showed that the private sector added 198,000 jobs in February, better than the consensus forecast of 175,000. Factory Orders fell 2.0% in January, but that was better than the consensus forecast of a 2.2% decline. Excluding the volatile transportation orders, factory orders were up 1.3%. And the Fed’s Beige Book, in which the Fed reported that the U.S. economy “generally expanded at a modest to moderate pace since the previous month’s Beige Book.” The description was almost identical to that in the previous report.

This morning’s reports are that new weekly unemployment claims fell by 7,000 last week to 340,000, considerably better than the consensus forecast of 353,000 claims. The four-week moving average, which smooths out the weekly volatility, fell by 7,000 to 348,750, its lowest level since March, 2008. Productivity for the 4th quarter was revised to a decline of 1.9% from the previous report of a decline of 2.0%. And the U.S. Trade Deficit widened sharply in January, by 16.5%, reversing the encouraging narrowing of the deficit the previous month. Exports fell 1.2% in January while imports jumped 1.8%.

The big report of the week will be tomorrow morning’s Labor Dept Monthly Employment Report. We have always referred to it as ‘The big one’ since it so often comes out with a surprise in one direction or the other that results in a one or two day triple-digit move by the Dow in once direction or the other. The other side of the pattern is that the move is usually reversed over the following few days and the market goes back to whatever was its focus prior to the report.

This morning’s reports have had little effect on the pre-open indicators which have been fractionally positive all morning.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being up 20 points or so in the early going this morning, meaningless as to direction later.

To read my weekend newspaper column click here: Politicians Still Don’t Get It!

Subscribers to Street Smart Report: The new issue of the newsletter is in your secure area of the Street Smart Report website from yesterday.

And there will be an in-depth ‘Gold, Bonds, Dollar, Commodities’ update on the website later today!

I’ll be back with the next regular blog post on Saturday morning, as usual later than the week-day posts, probably around 11 a.m.

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