We had an interesting discussion last week about the correlation between commodities and stocks. The weekly chart below shows how CRB Commodities Index closely tracks the S&P 500 — except in times of extreme volatility like 2007/2008. We are now witnessing another divergence, with the CRB headed for a test of primary support at 295 while the S&P 500 strengthens. Does weak demand for commodities indicate that stocks are over-priced as in 2007? The Fed has been doing its best to depress bond yields, pumping up stock prices ahead of the November election. It is too early to tell what the outcome will be, but we need to monitor this relationship through the year.
The divergence between Brent Crude and Nymex Light Crude, from early 2011, continues. Both are in a primary up-trend, however, and breakout above the 2011 Nymex high would threaten the still fragile US recovery, offering a long-term target of $140/barrel. Brent is currently testing medium-term support at $115, but respect of this would also confirm a primary up-trend.
Great site! The Brent/NYMEX spread is interesting for US oil traders as it is primarily a matter of logistics such as storage levels at Cushing, bottlenecks from producing basins to Cushing,OK and on to Houston and the rapidly evolving infrastructure. Crude on the coast trades at Brent adjusted for quality while inland points (including NYMEX) are a function of supply and logistics. For those of us in the energy midstream business or refining the WTI/Brent spread is meaningful. However, the Brent/WTI relationship doesn’t have much macro implications compared to the CRB/S&P500 relationship, for example.