Markets Set For Further Downside
Market traders have been forced to focus on a number of different asset classes this year, with several major instruments completing significant trend moves. Some of the best examples here can be found in gold, the Euro, and the S&P 500 and there have been some asset classes that have been neglected in the wake of this. Market traders that are looking to trade in the broader stock benchmarks like the S&P 500 will need to pay attention to these areas, however. This will ultimately be the best way of determining whether stocks have run their bullish course and are ready to reverse.
One of these ignored asset types can be found in the commodities space. In particular, we can say that oil is in the midst of some highly important trend activity that should be paid more attention both in the financial media and within the trading community. Reduced demand has negatively impacted oil markets and we are still trading in severely depressed territory when we look at current prices versus their historical averages. This means that assets like the United States Oil ETF (USO, Financial) would be traded from the bearish stance as long as this dynamic holds.
When we look at the recent market in USO, we can see a resumption of the longer term downtrend and prices that are en route to retest the lows for the year (set back in March). This falls in line with recent trader sentiment reports that were releasedearlier this month, which suggest that the majority of the market remains bearish on this and other oil-related assets. This supports the technical picture and the downtrend that will continue to remain valid as long as resistance at 20.80 remains intact.
Other factors that should continue to impact prices can be found in the fact that the Federal Reserve now remains intent on raising interest rates in ways that reflect a more normal monetary policy agenda. Higher interest rates generally mean lower oil prices as there is much more reduced demand present in the market (both for consumers and for producers). When we look at the financial media, these are topics that have gone largely uncovered because most of the attention has been focused elsewhere (on stocks, the Euro, and on gold). But there is still a wide variety of strategies that can be used to capitalize on these types of moves and this is something stock traders should think about when dealing with the slower volatility that typically accompanies the summer months.
