Gold and Oil Pull Back Hard

Over the last few weeks, both gold and crude oil prices have become more volatile, both rising quickly and falling quicker. Let’s take a peek at some of the charts and what it might mean for the stock market:

Crude Oil Prices:

Recall that Crude Oil prices are quoted in US Dollars, and the dollar has been strengthening lately. Also, oil recently shot from $86 per barrel to over $110 – a massive increase without a pullback or consolidation in between. Some sort of ‘reaction’ against this move was almost certain.

However, what actually has formed appears to be a potential early reversal signal, which will be confirmed if price falls beneath $100 which will alert many funds and traders (and the national news) to this development. There may even be significant stops placed beneath that level which will trigger quickly.

Notice that price has made a lower high and is threatening to make a lower low, which would shift price into a downtrend on the daily chart. Significant support exists around $100, so traders need not get ultra bearish for oil until that development occurs. I would imagine that declining oil prices would be viewed quite favorably to stock market participants for what it means for the economy.

On to Gold Prices (per ounce):

Unlike oil prices, gold price have actually turned over into a confirmed downtrend on the daily chart (trends are relative to their time frames).

Gold prices increase when investors/traders fear that inflationary concerns are invading the economy, and often place longer term investments here when they feel economic uncertainty is ahead.

Prices have been increasing rapidly, and again a pullback (or reaction) is not a surprise to most traders. Unfortunately, this development may come to a surprise to the general public, some of whom have been melting gold artifacts to take advantage of higher prices.

Trend changes can precede large moves, and often trends end in euphoria (which is synonymous with continuity of thought, and when this occurs, no one is left to buy – such things are puzzling to new traders).

Keep an eye on these two ‘key commodities’ because their direction can often send signals to the broader stock market.