Crude Oil Trend Remains Positve

Commodities / Crude Oil Feb 09, 2011 - 10:15 AM

By: Donald_W_Dony

Oil prices have pulled back recently triggering suspicion that this movement is the start of a deeper correction. In reality, the supportive trends from key securities indicates just the opposite. Oil prices remain in a solid upward path.

Copper prices and world stock markets have been trading in lock step with oil for many years. The reason is largely linked to growth. As global economies expand, there is an improvement in corporate earnings which is beneficial to stock prices. The growth in the world economies also creates higher demand for elements such as copper and energy. Chart 1 illustrates this connection.

A deeper correction in oil prices would likely also have to contain a significant drop in copper and world stock prices. There is no evidence of this development.

Longer term, the fundamentals of reduced supply (Chart 2) and mounting world demand underpins the broader picture for higher oil prices in 2011. The 1st target remains at $105.

Bottom line: Oil prices are trading in near parallel paths with copper and global equity indexes. Economic growth is driving all three securities. As the outlook for world stock markets continues to improve, so does the expectation for higher copper and oil prices.

Investment approach: A significant correction in oil would require the commodity to trade below the $87-$86 support level. It would also likely trigger copper to decline under $4.20 and the Dow Jones World Stock Index to fall through the 250 line. As oil prices move in close tandem with these other two significant assets, monitoring all three would provide a more conclusive picture verses just reviewing the actions of oil.

More research is available in the February Newsletter. Go to www.technicalspeculator.com and click on member login.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

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