I’ve commented for weeks upon the disconnect that continues between the price of oil and the prices of oil stocks. In the past, you could set your clock based upon the correlation between oil and oil stocks, and my successful trading career has in no small measure depended upon this correlation.
But my very correct call on oil prices, now above $70 a barrel in Brent, has not so far been rewarded with concurrent gains on our oil stocks.
Is it possible we are seeing some light at the end of the tunnel? On Wednesday, that disconnect took a few small steps towards dissolving. It has been a long time since I can recall a day when the larger stock indexes were down and yet the energy sector posted positive gains. Yet this happened on Wednesday.
But – let’s not get too hopeful yet. We have also cautioned about volatility and the difficulties it delivers. We’ve noted the continued prospect of a trade war with China, saber-rattling in North Korea and Iran and in the last days we’ve seen more geopolitical risk with a possible retaliatory missile strike in Syria and more Houthi missiles launched from Yemen flying over Saudi Arabia.
Despite the positive action recently in oil stocks, we still note that volatility is not normally a positive sign that we should blithely accept. It will require a bit more work to manage through this wild moment in the stock market, and I am looking at this mini-recovery in oil and oil stocks as an opportunity…