Loyal readers of the Daily know that we often focus on zooming out to longer timeframes to assess bigger trends. Clearly, the 80-month moving average in small caps and retail has become an important support “line in the sand” to measure the potential for recession and/or stagflation. In the case of the chart of USO (US Oil Reserves), the 80-month moving average is a line in the sand to measure the inflation narrative or higher oil prices likely coming.
Historically, the 80-month moving average (green line) served as resistance in USO since 2008 when the market crashed. Then, from March 2022 until July 2022, USO traded above the 80-month MA. However, that was short-lived thanks to rising interest rates.
3 months ago, that changed. Once oil cleared $80 a barrel, we saw the price spike to about $94.00. USO then cleared the 80-month MA in August on the heels of OPEC+ and the US dwindling oil reserves, plus higher-than-expected demand. The oil market appears to have priced in current interest rate values.
Although the current geopolitical situation is not a pure impact on oil prices, what the chart suggests is that lack of impact can reverse to a much larger impact. The USO price closed the month of September at 76.00. This month, USO opened higher. Currently, the price is above the 80-month, but slightly below a pivotal point at 76.00.
Quite simply, a move over 76 suggests higher prices with a good risk point to under 73 or the 80-month MA. That would correspond with oil holding $80 per barrel and returning above $86.00. More importantly, if the trend is your friend, this break higher of the 6-7 year business cycle, if it sustains, should drive oil prices to the next target of around $110.
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S&P 500 (SPY): 435 resistance.Russell 2000 (IWM): 177 resistance.Dow (DIA): 338 resistance.Nasdaq (QQQ): 368 pivotal.Regional banks (KRE): 39.80-42.00 range.Semiconductors (SMH): 150 resistance, 143 support.Transportation (IYT): 237 resistance, 225 support.Biotechnology (IBB): 120-125 range.Retail (XRT): 57 key support; if can climb over 61, bullish.
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