Bob Hoye

Crude Oil Triples In A Financial Bubble: What's Next?

History is in an age of great financial bubbles within which crude has enjoyed some outstanding rallies. From 11 to 36 in 2000, which clocked the climax of the Dot-com Bubble. Crude collapsed with the contraction and common to many such contractions, the senior currency went up. In this it was the dollar and no matter how much the Fed tried to bring it down to boost the markets, the DX went up.

The next triple was from 50 to 147 in July of 2008, shortly before that contraction became devastating. And the latest triple started at the dismal 26 in early 2016 and made it to 76 recently. The action is becoming overbought on the Weekly RSI at a suitable time. Why suitable?  On the seasonal trends prior to the last decade, crude could set a nice high in the late-September to early October window. Which we have. However, over the past 30 years the seasonal for serious lows in the December-January window have been reliable.

Reliable guides to the transition from a great bubble to contraction has been a turn to weakening industrial commodities. The only one up now is crude. Another is the change in the credit markets. This would be the yield curve reversing to steepening and credit spreads turning to widening. Both seem to be in early stages of reversing.

Crude along with other industrial commodities is vulnerable.