The recent declining trend in crude oil may have caught many traders by surprise. Before the US Fed raised interest rates on June 15, 2022, crude oil was trading above $ 120ppb. After 5 days, it has declined -12% and continues to trend lower. Currently, crude oil is -17% lower than the recent high.
Crude oil has proven resistance at close to $ 120 and is becoming devalued when the Fed aggressively tries to burst inflation bubbles as consumers move away from traditional driving / spending habits. This kind of contraction in crude oil is similar to what the global financial crisis (GFC) hit in 2008-09 – crude oil fell by more than -70% since the IYC began a low trend in 2007.
Consumer discretionary spending can lead to crude oil downward
On June 9, 2022, I published a research article (crude oil prices and consumer spending – how they relate) that highlights the correlation between crude oil and consumer discretionary ETFs (IYC). In this article, any breakdown in IYC, below $ 60, could trigger a broader declining price trend in crude oil – perhaps targeting the $ 75 to $ 85 price level.
Looking at this chart from our June 9, 2022 article, we can see that the IYC has already fallen -34% from the recent highs. In 2007, peak oil prices reached before the IYC fell by more than -22%. So, in this case, the recent downturn in IYC is already predicting a declining price trend in crude oil – perhaps targeting a level below $ 80.
(Our crude oil / IYC chart from the June 9, 2022 article)
Aggressive Fed action can trigger excessive consumer actions
In a strange way, the 2008-09 GFC represents an excessive / speculative phase in the US credit / housing markets. Today, after the COVID-19 event, we see a number of factors – home prices skyrocketed from + 25% to + 45% in some areas. Additionally, before 2007-08, we saw moderately high inflation levels, with crude oil trading above $ 100 ppb, some commodities in high demand, and consumers spending aggressively on almost everything.
Today, we see some combination of GFC and DOT COM bubbles. Home prices and raw commodities have seen incredible rallies over the past 5+ years, but the technology and innovation sectors have also been key in market profits. In the last 5+ years, Bitcoin has accumulated from less than $ 1000 to around $ 70,000. Recently, over-speculation in global markets has become apparent in various sectors and assets.
Global Central Banks running the show (again)
I believe the US Federal Reserve will continue to aggressively raise rates in an attempt to tame inflation trends. At the same time, we can see many global central banks trying to follow the US Fed in raising rates. This creates an economic climate many traders are not prepared for – extended stagflation / recession.
The downward trend in crude oil and the IYC could be “canary” for the global economy and what’s ahead. When consumers deviate from traditional pending practices, we are likely to see a broader contraction in global GDP and other economic factors.
Traders and investors need to be aware of various global market trends and move back to a more traditional way of managing their portfolio. Global markets are still 3x to 5x more volatile than at any time in recent history. Any aggressive trading style can lead to huge losses – something we see in many global hedge funds and managed accounts.
Learn from our team of seasoned shoppers
In today’s market trend environment, it is imperative to assess our business plans, portfolio holdings and cash reserves. As professional technical traders, we always follow the price. At first glance, it is very simple and simple. But emotions can hamper the trader’s success when they buck the trend (price). Remember, protecting our pride and securing our hard-earned capital is vital to our survival and success.
Successfully managing our drawdowns will ensure the success of our business. The bigger the loss, the more difficult it is to fill. Consider the following:
The recovery time varies significantly depending on the amount of drawdown:
Depending on the age of the trader, they may not have the time to wait or the patience for market recovery. Because most people learn this principle hard, successful traders know that keeping drawdowns with reason is crucial.
How can we help you learn to invest traditionally
At TheTechnicalTraders.com, my team and I can do these things:
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