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After a torrid run from its bottom, crude oil has settled into the tightest range we've seen in a year. But according to one highly regarded technician, the commodity is heading into a key inflection point.
"If you look back to 1984, you see that [the summer months] are some of the best times of the year to be invested in oil," technical analyst Ari Wald said Tuesday on CNBC's "Futures Now."
Ever so gently, sparingly and delicately, the long-awaited "Great Rotation" may finally be upon Wall Street.
Like a shadowy urban legend, the 'rotation' phenomenon, which describes a mass shift of money out of bonds and into stocks, never quite has the impact many analysts warn about.
Although in 2014 the trend was clear—the S&P 500 Index rose alongside bond prices—until very recently, very much the opposite has transpired. The price of the US 10-year Treasury note had fallen by 3 percent, while the S&P 500 rose less than 2 percent.
The open question is the extent to which this has been driven by investors fleeing bonds in favor of equities. And, further, whether investors will begin to pursue such a strategy en masse.
Such a move has long been hypothesized (and memorably encapsulated in a Dickensian Bank of America Merrill Lynch analysis). The idea holds that investors would eventually embrace risk, and become less satisfied with low bond returns as the economy recovered and the Federal Reserve tightened policy. That didn't exactly happen, with the 10-year yield managing to stay below 3 percent.
But in 2015, just when the meme appeared to disappear from the market's radar, it may actually be coming to pass. Last week, investors yanked nearly $6 billion out of global funds, the largest such outflow in nearly 2 years.
The bond and equity markets are forging "a whole new personality completely," commented Jim Iuorio, a Chicago-based trader with TJM Institutional Services.
Whereas stocks had been responding positively to low yields—meaning that bond prices (which move inversely to yields) enjoyed a positive correlation with stocks—now the specter of rising rates is causing "big, huge chunks of money to exit bonds and look for a new home. And since stocks are still a reasonable place to be, they end up in stocks."
Similarly, Nicholas Colas of Convergex observed in a Friday note that "at the moment, the volatility in fixed income markets is pushing the marginal investment dollar into equity products."
That would be the fear-based interpretation. The more optimistic read is that in the longer-run, yields and stocks are rising together because the American economy is improving.
As the economy heats up, so too should inflation, which means investors must demand greater yields on their bonds in order to avoid losing money on a "real returns" basis. Last week, producer prices jumped to their highest in nearly 3 years, boosted by surging food and gas prices.
Inflation, of course, stings consumers, who end up paying more for the same amount of goods. However, stocks respond positively to profit-boosting growth that many companies see in an environment of rising prices.
One top technical analyst sees more downside risk than upside reward for the S&P 500 in the months ahead.
Matt Maley, equity strategist at Miller Tabak, is worried about how the index has behaved over the past six months. Particularly, Maley notes that the S&P 500 has tested its 100-day moving average repeatedly before rallying up to what he sees as an upward-sloping resistance line.
"The problem is when we rally and break to new highs, which we've done several times, each time it's only a slight break of 1 percent or so," he said. "Although it's kind of an upward-sloping channel there, my concern is that we haven't been able to break out in a significant way."
The S&P 500 staged a midday rebound on Tuesday, saving the index from its fourth straight day of losses. And that bounce could be the start of a prolonged move higher for stocks, according to BTIG technician Katie Stockton.
"Today is certainly encouraging," Stockton said Tuesday on CNBC's "Futures Now." "You can't call one day a reversal, but to the extent that we could see the S&P futures hold support at 2,075, that's a good thing, that's a positive. Usually the oversold bounce takes a few days to develop."
Indeed, Stockton believes that the market has become "oversold."
"If you look at where [the S&P futures] are trading today, there is some short-term support that's being tested. So this would be a natural place for additional buyers to come into the market," Stockton said.
After oil prices fell sharply, commodities sage Dennis Gartman said he sees the possibility for even lower prices.
WTI crude oil closed at $58 per barrel Thursday on expectations OPEC will keep its output at 30 million barrels a day. But even at that pace, Gartman said, there simply is too much supply. He spoke a day before OPEC on Friday decided to maintain current production levels.
"There's plenty more crude oil being found all around the world. I think it's going to be very difficult to push WTI much beyond $65 maybe $66," Gartman said Thursday on CNBC.com's "Futures Now."
The transports could soon drive the market sharply lower, warns one top technician.
On CNBC's "Futures Now" on Tuesday, Wall Street legend Louise Yamada said that the divergence that is happening between the Dow Jones transportation average and the Dow Jones industrial average could mean a steep correction in the very near future.
"It's the concept of 'Dow Theory' in which the companies that make the products and the companies that transport them are supposed to move in tandem," said Yamada, founder of Yamada Technical Advisors. "Most of the time they do, but the transports have broken support and now we are seeing a kickback into that resistance." The transports are down 8 percent this year while the industrials are up 1 percent in the same period.
Although recent price action suggests otherwise, a slow-burning geopolitical situation in the South China Sea may yet become a flashpoint for market volatility.
The U.S. is talking tough in the face of mounting evidence of Chinese land grabs and military movements near its neighbors, and Beijing is defiant. The threat of a confrontation between the world's two largest economies hasn't registered on traders' radars, that may change, some say.
"Market mentality has a tendency toward complacency, and right now, geopolitical risk is nowhere on the radar screen. That could be a major mistake," Chicago-based trader Jim Iuorio warned.
"The developments in China seem to be moving in one direction, and although they may not seem to be a problem now, that could change quickly," he added.
The topic also found its way into the somewhat rambling remarks last week of former Lehman Brothers CEO Dick Fuld.
The disgraced executive, whose firm's collapse hastened the 2008 financial crisis, folded the conflict into a laundry list of geopolitical worries for stocks. These included Russia's military encroachments, and the threat of a nuclear Iran.
David Stockman has a stark warning for the world: Stocks and bonds are on the verge of a catastrophic collapse.
On CNBC's "Futures Now" Thursday, the former OMB Director said that excessive monetary policy has forced central banks all over the world into a corner, and as a result, "the markets are going to be in for a huge, nasty morning after as people begin to look at where we really are."
Stockman questioned the real strength of the economy, noting that despite the fact that the U.S. is in the midst of one of the "longest expansion or recovery periods we've had in the post-war period," we're currently in month 78 of zero interest rates. By his logic, the market has become far too dependent on the Fed.
The biggest story in the stock market this year has been, well, no story at all.
That's because, according to one top technician, the Dow Jones industrial average is on track to see its tightest trading range for the first half of the year ever.
"If you look at the high-to-low range for the Dow Jones industrial average for the first half of this year, as of now it's just over 6 percent," technical analyst Jonathan Krinsky said Thursday on CNBC's "Futures Now."
If this trend holds till the end of the quarter, Krinsky says it would mark the "narrowest first-half trading range in the history of the Dow," which dates back to 1896.
Silver fell more than 3 percent Tuesday as a strong dollar put pressure on commodity prices across the board. And according to one top technician, the selloff is just a foreshadow of what could be a major correction for the white metal.
"If you look at the price action in silver from the start of the year, we've been in a very tight range and haven't been able to break any meaningful topside level," said technical analyst MacNeil Curry on CNBC's "Futures Now." Silver is up roughly 8 percent on the year, but still hasn't managed to reclaim its year-to-date high of $18.50 hit in mid-January. The metal is also down more than 20 percent from its 52-week high of $21.63 hit in July 2014. Silver settled at $17.09 on Tuesday.
Curry notes that the inverse relationship between precious metals and the dollar should have given silver prices a more significant boost as the greenback has fallen 7 percent from its high.
"The fact that it hasn't been able to make any kind of headway despite a weakening buck in the last two months speaks volumes to the fact that the path of least resistance is still significantly lower here," said Curry, head of global technical strategy at Bank of America Merrill Lynch
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