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Oil's Shocking Jump Is Fooling People

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DiscoverGold   Tuesday, 09/17/19 11:03:48 AM
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Oil's Shocking Jump Is Fooling People
By: SentimenTrader | September 17, 2019

Shocking move

The jump in crude oil on Monday was one of the most shocking in 30 years.

For energy stocks, a 4 standard deviation jump in oil prices tended to be a good sign going forward, with only a single loss over the next 2-3 months. Contrary to what many may believe, it was also a good sign for indexes like the Nasdaq Composite, which was positive every time 6 months later.

It came at a good time

As noted last week, energy stocks were the most undervalued major sector, with a dividend yield at a record high relative to Treasuries. It also came when these stocks made up a record low percentage of the S&P 500 index.

New trend?

It faded during the day, so the S&P’s energy component didn’t quite pop enough above its 200-day average, which would end one of the longest downtrends since 1926. Other times long streaks ended, it was a decent long-term sign.

Volatility drip

Even though it rose a little bit on Monday, on Friday the VIX dropped below 14 for the first time in more than a month. As Troy noted, of the more than 20 times this has happened since 1990, all but one led to a higher return in the S&P 500 6-12 months later. The VIX itself tended to rise in the weeks ahead, but that wasn’t necessarily a consistent negative for stocks.

Broadening rally

The percentage of stocks on the NYSE above their 200-day averages hit a 1-year high. That has led to a positive return over the next 2 months all but once (a loss of -0.2%).

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Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Your Due Dilegence is a must!
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