How Low is Low?

Gas is currently selling for $2.19 a gallon and headed under $2. Wow! It was just a short-time ago that eveyone was thinking that we would be paying well over $3 a gallon. Does this mean that the five-year energy bull market is over? If the energy bull market is over, what about the other resource areas that have experienced major bull moves, like gold, silver, copper, etc.? In order to address the above questions, let's look at the following chart of the Commodity Research Bureau (CRB) Index, which is comprised of twenty-two (22) sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions.

CRB Index has penetrated its 50-week EMA average, which does signal an end to its five-year major trend. However, since the 50-week EMA is above the 200-week EMA, the commodity bull market is still intact. What we can expect is a "correction" down to the 200-week EMA, which is currently about 300. Ok, what does this chart have to do with the price of oil? Everything. Take a look at the following $WTIC chart, which is the "Light Crude Oil."

The price ($67.15) has penetrated its 50-week EMA ($67.39). $WTIC is following the price action of $CRB. Like the $CRB, $WTIC is still in a major bull market. Therefore, a reasonable downside price objective for oil is at the 200-week EMA, which is $51. By the way, that should equate to about $1.70 at the pump and still leave the major oil bull market intact.

You may have noticed that the two charts include some additional information (PPO and Full Sto) besides the "price." We will discuss these market indicators next week. In the meantime, enjoy these gas prices!