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2 Charts to Watch in Lieu of a Shocking Move in Crude Oil

by | Oct 11, 2021

We’re starting the week off a bit rocky, with futures reacting negatively to the rise in energy prices in 2021 and interest rates. Crude oil is trading north of $80 and the 10-year Treasury yield is now trading above 1.60%. 

The extended rally in crude oil is pushing it near multi-year highs, boosting energy shares. However, it is also igniting investor fears of the obvious inflation running rampant in the markets.

To add more fuel to the fire, both of these factors happening at the same time is ominous for the “inflation is transitory” case… 

It’s been my view for a few months that the Federal Reserve would be unable to deny the rise in energy, and that it would become a problem not just for the markets but for the real economy as well.

Like I mentioned Friday, when OPEC confirmed it won’t increase production, oil rose above $81 a barrel for the first time in seven years. And some analysts are calling for the price to move even higher, to $90 or even $100 per barrel, if we experience a colder-than-anticipated winter.

This week could be the beginning of what I see as a potentially parabolic shock rise in energy prices in 2021 that’ll cause the same chain reaction in oil and gas.

Parabolic Rise in Energy Prices in 2021 Causes More Inflation Concerns

The last time we saw a parabolic move like this in oil it resulted in nearly a 20% decline in the S&P 500 — right before oil also collapsed and the broader market fell another 50%. 

Of course, the extra 50% fall was during the Great Recession.

Earnings season also kicks off this week with some major banks reporting. This time around, there’s only one stock in particular I’m interested in: JPMorgan Chase & Co. (NYSE: JPM).

This has been one of my favorite bank stocks for a while now. JPM runs a tight risk control system in its bank — which in the past helped it avoid the major disasters of the financial crisis in 2008. 

I expect it to navigate the China and bond risks better than anyone. I also expect to see the uptick in yields to manifest itself in banks earnings, as they leverage higher rates to make more on their lending business, which is robust.

The stock still offers decent risk-reward at this level, with the 50- and 100-day moving averages both near $160 as support, and with upside to $200.

Let me know what you think about the rise in energy prices in 2021.

Send any trading questions to jeff@joyofthetrade.com and stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel

WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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