Crude Oil Rallies into the $66 "Red Zone"

Cheap oil is bullish for the economy & stock market while expensive oil is not. Crude is rallying sharply today as the U.S. ends waivers for countries to import Iranian oil. Crude futures spiked as high as 3% today to a high of 65.98 so far, essentially right at the $66 ‘Red Zone”. I refer to that level as the Red Zone as crude oil had a similar over-extended bull run into the $66 level back in late January 2018.
Back then, just as today, crude oil was rallying in lock-step with the U.S. stock market on one of the strongest & most resilient rallies in decades… all up until the point that crude oil kissed $66/barrel at which point the rallies in both equities & crude oil came to an abrupt end, followed by one of the sharpest corrections in years with the S&P 500 plunging 12% in just 10 trading session & wiping out the previous 4½ months of gains in very short order. Following that initial 12% drop, the broad market mounted a fairly impressive 11% rally along with a concurrent recovery in crude oil which was once again checked at the $66/bbl level with both crude & the stock market immediately reversing course to take another sharp leg down.

History doesn’t always repeat but it often rhymes. As was the case back then, both crude oil & the stock market were wedging higher on the 60-minute time frames with negative divergences building & the breakout & sell signal for that big drop in Jan 2018 was well-telegraphed in advanced as the charts below from this post back on Jan 25, 2018 (posted the very day before the market topped) show:

That was then, this is now (click the first chart to expand, then click anywhere on the right of each chart to advance to the next expanded chart):

Once again, we don’t have any sell signals on either crude oil or the equity market at this time but with the overbought conditions & divergences on both, as well as the fact that sooner or later, rising crude prices will begin to hit the pocket book of both consumers & corporations, not to mention the inflationary effects that certainly don’t help support the case for a continuing dovish stance from the Fed, chances are that the chatter on the Street will soon shift to the rally in crude as having a net bullish effect on the stock market to a net bearish effect.