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Oil Spells Warning Signs For Market

Whether this latest rally has been topped off by end of quarter window dressing or not, the markets have had a huge rally. With four straight weeks of gains, the stock market looks to add number five this week. While the move has been sensational, one warning sign that keeps popping up is oil. The S&P is up 10% for the month of September and the Nasdaq 100 is higher by 15%. Truly remarkable. If this gain in the markets is from the core of a true recovery, global and domestic, oil should be up approximately 10% as well, maybe even more considering the drop in the Dollar. After all, if a recovery is taking place, demand for oil should be jumping. Supply and demand would dictate oil should be higher.  The United States Oil Fund LP (ETF) (NYSE:USO) made its low a month ago at $31.50. It is currently trading at $33.07. That is only a move higher of 5%, half of what the S&P 500 is up. In addition, the Dollar has been crushed over the last month. One month ago today, the PowerShares DB US Dollar Index Bullish (NYSE:UUP) was trading at $24.14.  Today it is trading at $22.99.  That is a drop of 4.75%. When you factor in the U.S. Dollars drop, oil is basically flat on this whole entire move higher in the S&P 500. Very fishy! This serves as a warning sign, nothing more.

Gareth Soloway
Chief Market Strategist