September was another rough month for crude oil, as the futures closed down 5.6% for the month. The year-to-date analysis shows that it is down 34.1% in 2020. Energy stocks in general have not been a positive sector for investors in 2020. The Energy Sector Select (XLE)
This decline was not really a surprise. Using seasonal analysis, I noted in February that crude oil futures have a tendency to top and bottom during certain times of the year. Crude oil typically tops in July while a bottom typically forms between December 14 and February 8 (see chart).
So what is the crude oil outlook for the rest of 2020?
For the past three months, the crude oil futures have been stalled below the 20-month exponential moving average (EMA) which is now at $43.06. This also corresponds to the former support, now resistance in the $43.55 area (line b). There is first monthly support at $36.13, which was the September low.
Crude’s monthly On Balance Volume (OBV) closed above its weighted moving average (WMA)— currently flat—in August, but then closed back below it in September. The OBV had previously broken support from the 2017 and 2018 lows (line c), which makes this OBV rally failure a negative development. The monthly volume over the past five months has been low (line e), which is consistent with a rebound but not a new uptrend.
The monthly Herrick Payoff Index (HPI), uses volume, open interest, and prices to measure money flow. The HPI tested the downtrend (line d) early in 2020, and then closed below the zero line in February. The rebound from the April lows has taken the HPI back to its downtrend and its declining WMA. A lower close in October will be consistent with a further decline.
The news of President Trump’s positive COVID-19 test pressured the crude oil and stock market on Friday, with the December crude oil contract closing the week down 7.8%. The weekly chart shows that the rebound from the springtime lows failed well below the major weekly resistance at $47.01 (line a). Last week, December crude tested the early September lows, with the weekly starc- band at $34.04. The 20-week EMA at $40.25 is starting to turn lower.
The weekly OBV has closed just below its WMA, but is still well above support (line b). The HPI formed a bullish divergence at the late April lows (line e), forming higher lows while crude oil formed lower lows. The HPI was able to move slightly above zero in August, but has since turned lower and is just below its WMA.
The Nasdaq 100
On the NYSE, there were 2348 issues advancing and 766 declining. Despite the selling on Friday, nearly all of the weekly advance/decline lines are above their WMAs and positive, with the Russell 2000 A/D line being the exception. It is important that the weekly A/D lines reached support a week ago and have now turned higher. A majority of the daily A/D lines turned positive with Thursday’s close and stayed positive despite Friday’s selling.
The NYSE Composite dropped well below its 20-week EMA a week ago, with a low of 12,228 before closing at 12,485. There is now support (line a) at 12,249. The 2.1% gain last week in the NYSE has improved the technical outlook, with next resistance at the mid-September high of 12,128. The weekly starc+ band is at 13,611.
The NYSE All Issues A/D line closed barely below its rising WMA a week ago and tested support (line b) before turning higher this week. This is a bullish sign, especially with the positive signals from the daily A/D lines. It would take a drop below the recent low in the weekly A/D line to turn the outlook negative.
There may be plenty of uncertainty heading into Monday’s open unless we get a more definitive and consistent picture of President Trump’s condition and a prognosis. From a technical standpoint, as long as the market turns higher by the end of the week, the intermediate trend will stay bullish.
The economic data last week was mixed, but most was better than expected. As I thought last weekend the data would help stocks move higher. Particularly strong were the Consumer Confidence Index and the Chicago Business Barometer (also known as the Chicago PMI), which came in at 62.4, compared to 51.2 last month. This chart shows the dramatic rebound and is part of the excellent economic review from Advisor Perspectives. Of course, the real test will be the earnings season, which begins in just over a week.
In terms of economic data, this week we get the ISM Services Index, FOMC minutes, and the latest data on jobless claims. Claims could see a sharp rise from the airline layoffs. It will be interesting to see how the stock market reacts if the jobless numbers are worse than expected.
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