Tipping point

Posted August 3, 2011 8:00 p.m. ET (10:00 a.m. AET) on Trading Diary.

Markets are approaching the tipping point at which they will confirm a primary down-trend. The probability of a bear market is around 75 percent, with 80 about as high as you can get at a turning point. As highlighted in May, every significant spike in crude oil prices in the last 50 years has been followed by a recession — and the current spike is likely to prove no different. Ben Bernanke will modestly decline to take the credit, but the initial groundwork for higher oil prices was laid by QEII. Prices had started to rise well before the conflict in Libya.

Crude Oil and US Recessions

Investor flight to safety is clearly signaled by the sharp fall in 10-year treasury yields.

Other safe havens such as gold and the Swiss franc display a corresponding spike over the last few days.

5 Replies to “Tipping point”

  1. Very good analysis GS&F. The question is whether, at the hard right edge, the existing spike is the top or an intermediate peak with the final top yet to come. If so the coming recession could well be the longest of all those shaded on the chart since 1970.

  2. “Every significant price spike in crude oil prices in the last 50 years has been followed by a recession”. Will this be different? It looks like it won’t.

  3. The right shoulder is at its peak now. The similarity with 1980 (2nd oil boom & consequent recession) and to a lesser degree 1973-4 (1st oil boom … and consequent recession) is history. In both cases, the right shoulder was a retest of the break out point … (a point made by CT back in May and subsequent … WTI was $98 and Brent (Tapis) was $118 … then they would converge). Overlay 1980-87 upon 2011+ and you have a road map for the next few years … volatility included. For the record the 2012 was forecast back in 1865. I was priviledged to see the evidence – a chart from the cotton boom of that era that mapped out (with some remkable accuracy) commodity boom and busts for the ensuing 150 years – culminating in a 2012 +/- 2 major bust. For the sceptics, I was studying this circa 1987+. If there is sufficient interest I would be honoured to post extracts via CT and this site (with his permission). For the record, I have not managed to take advantage of this knowledge … perhaps too influenced by news reports, economists, bankers et al … but then that is the definition of history … repeating the same mistakes but expecting (hoping for) a different outcome.

    1. That would be extremely interesting.
      Please follow up with more data and charts.
      Neville Warnes

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