Tuesday, March 8, 2011

S&P 500 & Crude Oil

On several occasions over the past year, I’ve observed that three is the charm among the four years of presidential terms. The S&P 500 has been up 18.4%, on average, during the past 14 third years of the presidential cycle without one down year. The market was tracking its historical composite very closely until the past couple of days. The S&P 500 closed at 1310.13 yesterday, 2.4% below the third-year composite index. The third-year composite for the S&P 500 rises to 1489 by the end of the year. Our forecast is 1500, which would be a 14.5% gain from yesterday’s close and a 19.3% increase for the year. Will it be different this time because geopolitics will trump domestic politics? (We update these charts regularly for subscribers in S&P 500 During Third Years of Presidential Terms.)
According to the latest CFTC Commitments of Traders report, Large Speculators were long WTI crude oil futures contracts to purchase a record 271.9 million barrels during the week of March 1. That’s up 89.7% from 5 weeks ago, and the highest ever. If and when the turmoil in the Middle East settles down, there is a potential for a massive long-covering drop in oil prices. When that happens, the third-year pattern for the S&P 500 should resume. (We update these charts regularly for subscribers in Commitments of Traders.)

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