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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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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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