Crude oil fell 7.17 pct in today’s trading session. This only reinforces the idea of a global market crash in 2019 as crude oil declines tend to come with market turmoil. Interestingly the 30 year chart of crude oil suggests that the end of the decline is near. InvestingHaven expects crude oil to fall another 15 pct as 2019 kicks off which comes after the 40 pct decline in recent 10 weeks. This may be very supportive for markets in general, and may bring stability in the current turmoil.
According to CNBC the crude oil decline of today was related to expectations of U.S. shale fields crude output to rise above 8 million barrels per day for the first time ever. Moreover, they indicate that fears of slowing global growth and weakening oil demand are also gripping the market.
While all that may be true the million dollar question is (1) how is crude oil impacting market turmoil (2) how much more downside is there in crude oil?
We wrote 2 years ago about the correlation between crude oil and stock markets. Back then we identified crude oil as the most important driver for the sell off in stocks. The intermarket correlation between the two assets was clear every time crude collapsed back then.
Right now we see a somehow similar picture.
The best way to look at this is the 30 year chart of crude oil. What’s visible is that crude oil has a track record of heterogeneous chart patterns which span over 2 to 6 years. Once they break though it always comes with market turmoil: 2008, 2015, 2018.
For now we see another 15% downside in crude oil until secular support. Presumably, the worst is over. Note that this 15% nicely lines up with the 10% downside we see in different stock market leading indicators. That’s what we wrote in our detailed report on the potential of a global market crash, specifically in the small cap index as well as German DAX index, both leading indicators for global stock markets.
In other words the crude oil intermarket relationship with stock markets suggests there is some more downside but presumably ‘only’ some 15 pct which compares to the 40 pct decline since October.