Right now, oil is in a ‘sweet spot’ for stocks: Technician

Crude's surge to new 2016 highs this week is paving the way for stocks to keep rising, according to one bullish technician.

"We've found that the 'sweet spot' [for stocks] is when oil is low and stabilized," Oppenheimer's Ari Wald said Wednesday on CNBC's "Trading Nation." "I think this trading range environment that we expect for oil is going to be very bullish for stocks as a whole."

After falling more than 70 percent from its highs in 2013, crude oil is bottoming, according to Wald. The next level of support he sees for crude is $37, with resistance at $48. That $11 range, he believes, "marks the resumption of the S&P's secular bull market."

Mild commodity bear markets have proven to be bullish for stocks, Wald argues, using the below chart to illustrate his point.


The key, he says, is stabilization. While investors respond adversely to surging or plummeting commodity prices, range-bound moves tend to be met by rising stock prices.

Meanwhile, some traders are convinced that the Fed, not crude, that will dictate the direction of the market.

"The Federal Reserve will reverse course eventually and raise rates one or two more times over the course of the next 12-18 months," said Chad Morganlander of Stifel Nicolaus. "If they do that, the dollar will continue to strengthen, and commodity prices will again reverse and fall out of bed."

Since the beginning of the year the U.S. dollar index has fallen 5 percent, and commodity prices have benefited from the decline. As that dollar decline is set to reverse in his view, Morganlander would avoid betting on commodity stability just yet.

"We would be more pragmatic about this situation that we're in right now," he said Wednesday.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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