Tags: oil | bull | stock | price

Oil Boosting Retail Stocks

By    |   Friday, 20 Feb 2015 08:02 AM

Oil prices have slumped in the past week after jumping more than 20 percent from their January lows. As investors, we need to begin thinking about whether the rebound was a normal, short-term bounce from oversold conditions or a sign of a long-lasting bottom.

For now, we should believe it was a short-term bounce and expect to see new lows in oil in the coming weeks.

One reason to expect new lows is because of how commodities behave in general. We can think about gold as an example of a typical commodity.

Gold took more than 10 years to form a bottom in price. After it finally entered a bull market around 2005, gold climbed steadily at first. The bull ended with a spike top where gold quickly soared to new highs and just as quickly fell from those highs leaving a spike pattern on the price chart.

Oil also formed a spike top at the end of its bull market in 2008 and we are now forming a bottom. It is likely that we're near the middle of the bottoming process in oil. Based on history, we are actually likely to see oil trading at low prices for another three years or more.

Sustained low oil prices should have a bullish impact on the stock market. Some sectors should benefit more than others. Retailers, for example, are a sector that has been outperforming the broad market during the past six months and should be expected to continue leading the way higher for stocks. This is a relationship explained by logic — consumers benefit from an increase in discretionary income when oil prices are low and that allows them to spend more at retailers.

Someday, oil prices will move higher but investors should not become concerned about a spike higher until after the bull market has been underway for several years.

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MichaelCarr
Oil prices have slumped in the past week after jumping more than 20 percent from their January lows. As investors, we need to begin thinking about whether the rebound was a normal, short-term bounce from oversold conditions or a sign of a long-lasting bottom.
oil, bull, stock, price
310
2015-02-20
Friday, 20 Feb 2015 08:02 AM
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