Oil and Gas: Important Role Players

On January 3, SPX reached a potentially important Fib level: the 2.24 extension of the drop between 2007-2009.

Now, it doesn’t matter whether or not you believe in harmonics — the application of Fibonacci ratios to price forecasting. But, you’d have to be blind to not see that plenty of people (or, at least the machines) do.Why begin a post on oil and gas with an SPX chart? Because, as has happened so frequently the past several years, oil (CL) and gas (RB) were instrumental in a plan to get SPX up over resistance.

For nearly two years, CL has followed a well defined rising channel, shown below in purple. It bounced back and forth between its top and bottom with some regularity until it broke out — you guessed it — on January 3.Fibonacci ratios and chart patterns can tell us a lot about future price movements. But, we must also consider ulterior motives — particularly for oil and gas, which are integral to telling algorithms when to buy and when to sell. I mattered when we called the bottom in Feb 2016 [see: USDJPY Finally Relents] and it matters today.

When CL and RB both reached our next downside targets from Jan 17 [see: Targets!] this morning, we had to stop and consider whether stocks had yet done what was desired of them. With SPX still 50 points away from its SMA200, it seemed they weren’t quite done. Turns out they weren’t.