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John Overstreet
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I have lived in Asia for over a decade. I have degrees in political theory and history/intelligence analysis, and I have been studying markets since the crisis in 2008.
  • Why Friday's Big Rally Bodes Ill For Stocks & Oil

    On Friday, Bespoke Investment Group put up a table showing the thirteen +2% month-ending Fridays for the S&P (NYSEARCA:SPY) since 1928.

    I am interested in the six post-Nixon Shock episodes, which I have put next to corresponding 'buy' signals for the Dow (NYSEARCA:DIA) using Stephen Leeb's Oil Indicator from his book The Oil Factor:

    +2% rallies (S&P)Leeb Indicator 'buy'
    Aug 1974Dec 1974
    Oct 1981Dec 1981
    Oct 1987Dec 1987
    Jul 1988 
    Sep 2001Dec 2000
    Jun 2012May 2010*

    *May 2010 is based on data from

    There is nothing momentous here, I think, but it might dampen hope that the rally last Friday signaled an immediate resumption of a bull market. In the case of 2001, which was nearly a year after the Leeb Indicator went positive, stocks continued to slide for a long time.

    (click to enlarge)crude oil year-on-year vs S&P 500 2001-2003

    In 1974, the market rallied in 1975, but this was not really the beginning of a strong bull market. In 1981, the market continued to slide, although not precipitously, well into the summer of 1982. Only in the case of 1987-1988 can we say that a significant rally was on deck.

    The rally last week was the only one that did not seem to be associated with a post-Leeb shock. Very "new normal", I suppose.

    But there is a much stronger correlation that casts doubt on my warning of a possible jump in oil this summer. In every single instance of these 2%+ jumps, year-on-year WTI oil (NYSEARCA:USO) did not bottom until months later.

    (click to enlarge)crude oil year on year 1988-1990

    Oil rose 9% on Friday, of course, so we can't say the markets are lacking a sense of irony.

    Disclosure: I am long BAC.

    Additional disclosure: I am long September WTI.

    Jul 02 5:40 PM | Link | Comment!
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