Oil Prices Could Crash Again, and Soon

Stocks are flat this morning as the market eyes a continued rotation into tech amid renewed Covid fears. Commodities, emerging markets, and reopening-sensitive companies are enduring sharp losses.

All while Treasury yields fall.

The 10-year Treasury note yield, for example, just hit 1.65%. It’s a 1.78% decrease from yesterday’s rate.

That has investors going back into a pandemic mindset, where “stay-at-home” growth stocks are king, especially if rates keep tumbling.

Analysts are encouraging traders to remain bullish as a result.

“Things have come full circle now, as stocks have staged a furious rally, with new highs happening across the globe as the economy recovers at a record pace,” explained Ryan Detrick, chief market strategist at LPL Financial.

“This bull market is off to an amazing start, but it is important to remember it is still young. While a pick-up in volatility would be normal as this stage of a strong bull market, we think suitable investors may want to consider buying the dip.”

Others, like Citi’s top U.S. equity strategist, Tobias Lekovich, are warning bulls that they may soon run out of headroom.

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“After an 80% rebound in equity prices since the lows of March 2020, it is fair to suggest that much of the good news is getting priced in and the upside potential becomes more limited from here,” Lekovich said.

Wall Street mostly feels good about the market’s short-term future, provided that the economic recovery stays on track. That could come to a screeching halt, however, if Covid cases continue to rise across the U.S.

As of last night, infections were up in over 21 states. Mutations of the virus seem to be gaining a foothold, too.

White House Chief Medical Advisor Dr. Anthony Fauci blames the recent lockdown pullbacks for the Covid resurgence. But the states with the most relaxed mandates – Florida and Texas – aren’t seeing an uptick in cases.

Instead, Michigan and New York are among those experiencing rising totals despite having the strictest Covid protocols in the country.

Don’t be surprised if several states make another push for lockdowns in the coming weeks. The federal government might even propose additional stimulus to smooth things over.

But perhaps the most shocking revelation today is still forming, and it’s not in yields nor tech.

Oil prices are facing a major “bearish cliff” after weeks of surging non-stop.

In fact, WTI crude is now teetering on the edge of the 50-day moving average (50-SMA) – a key technical trend-identifying indicator. Oil has a tendency to either consolidate, or worse, plunge after it dips beneath the 50-SMA. That’s exactly what happened last year after WTI crude crossed the 50-SMA in January.

Then, in March, the pandemic took hold and drove WTI crude to near-zero. That doesn’t mean we’ll see a repeat performance from oil this time, but the conditions are somewhat similar.

A far less severe drop could follow if lockdowns are put back into effect.

But even if more U.S. lockdowns don’t occur, oil could still plummet. It’s sitting on key support from last week.

Which, at the time, was smack-dab on the 50-SMA.

The threat of an oil crash puts yet another bearish “arrow” in the “quiver” of stock market worries. It’s already relatively full.

How much more pressure can investors handle?

And though we won’t know the answer to that question before it’s too late, we do know that some major oil selling could be on the horizon.

Ultimately putting the market at risk of a rapid, short-term dip.

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