Sterling Market Commentary for Friday February 24th, 2012 – A Quick Look at Oil

A Look at Thursday’s Market: The overall market moved moderately higher on Thursday in a relatively broad based move. In the commodities markets Oil was higher by $0.45 to $108.28  per barrel, and Gold was higher by $15.0 to $1,786.30 per ounce.  In the grain market,  Wheat was lower by $0.026 to $6.416 per bushel, and Corn was higher by $0.012 to $6.394 per bushel, while Soybeans were higher by $0.044 to $12.766 per bushel.

With the price of oil at $108 per barrel and the price of gasoline having been in the news for the last couple of weeks,  energy prices are starting to be paid attention to again. I’ve taken a quick look at the chats, and I see upside resistance on oil in the high $112 price level.  If the price of oil closes above this level, then there will have been a “cup pattern” completed on the charts with a measured move to roughly the high $149 level. If that happens, then another larger “cup pattern” will have been completed, with a measured move to almost $240 per barrel.  Ouch ! My best guess is that would put the price of gasoline to somewhere between $6 to $8 per gallon.

Despite what the naysayers may say,  if you take a look at the charts, the possibility of this happen rather quickly is real.  This weekend, I am going to take a very close look at the charts, and see what the exact numbers are. I will publish the results in this weekends edition of the Sterling Weekly.  I will also provide my results in Monday’s market commentary.

Also, it should be noted that despite the upward movement of the Dow Jones Industrial Average and the S&P 500,  the Dow Jones Transportation Index has been moving lower.  For those who believe in the Dow Theory this is a negative signal for the overall market.  My thoughts are that the Dow Transports are being pushed lower due to higher oil prices; additionally the Dow Jones Transportation Average is generally considered to be a fairly reliable indicator as transports companies ship goods and services, thus providing a good look at where the economy is going.  If this trend continues,  then the odds are that the broad market will follow the transports lower, not the other way around.

A Look ahead to Friday’s Market:  In looking at the charts from yesterday’s market a couple of items come to my attention.  The vast majority of the various sector indices I looked at have positive chart patterns.  However, when I look at the charts of the individual stocks with the highest trading volume, at best about half these stocks are moving higher, and those that are have light volume in comparison to their historical trading history.  The rest of the stocks look weak.

Granted, the market could continue higher for quite some time, but it sure makes me nervous.

The Bottom Line:  A trend remains in place until it is broken.  However the longer a trend is in place, the greater the chances of it being broken.