Gauging Equities from Crude Oil and Bonds

Crude Oil ($CL_F, $USO) measured in US Treasury prices ($TLT) is at a critical juncture. This is important because both have been proxies for the stock market. Crude Oil directly and US Treasuries inversely. So the combination can be a magnifying glass on the direction of the Equity markets. Look at what it is telling us.

The ratio chart above shows the Spot Price of West Texas Intermediate Crude against the iShares Barclays 20+ Year Treasury Bond ETF, $TLT and it is at a crossroads. First notice that it is at resistance of the slightly rising trend line near 0.87. It has approached from a series of higher lowers. When viewed from a longer perspective it shows a the resistance is the neckline of an Inverted Head and Shoulders pattern with a price objective of at least 1.11. Next note that it is also near the 38.2% Fibonacci retracement of the move lower from April through October. A move above 0.88 would set targets of 0.96, the 50% retracement and then 1.04, the 61.8% retracement. The indicators are a bit mixed though. The Relative Strength Index (RSI) is bullish and has remained so since mid October, but is turning lower. And the Moving Average Convergence Divergence (MACD) indicator has crossed positive, a bullish signal, but has stalled. Both support more upside but are showing signs of weakness. Hence the crossroads. A bullish chart at resistance with weakening indicators. A break in the chart higher over 0.88 is bullish for Equities while failure there and a move back lower is bearish. Which will it be?

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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