Oil rally nears test

  • Surging crude oil prices approaching resistance
  • Market up nearly 18% over the past month
  • Energy stocks along for the ride

Headlines like “GDP surprises to upside” may prompt most people to think about its implications for stocks, but experienced traders know the ripple effects of such developments can extend well beyond the usual market suspects.  

Crude oil is often used as a gauge of economic expectations—confidence about growth suggests businesses and consumers will use more energy, boosting demand for oil and putting upward pressure on prices.

Yesterday’s surprisingly strong initial Q2 GDP print (and a better-than-expected durable goods number) may have given oil bulls a reason to bid up oil prices yesterday—which they did—but crude has been on an upswing since late June. (The fact that we’ve been hearing more about this part of the oil story—rather than the potential inflationary threat posed by high oil prices—may be an indication of how much sentiment has changed from a year ago.)

In fact, the current rally—roughly 18% since June 27—is the US oil market’s biggest since its 23% March-April surge, and the second biggest since the first half of 2022.

Chart 2: September WTI crude oil futures (CLU3), 7/27/22–7/27/23. Crude oil price chart. Approaching resistance zone.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

But traders who follow the oil market may have noticed prices are also approaching an important resistance level defined by several swing highs since last October (roughly $81.50-$83.50). Oil has been essentially rangebound since then, occasionally expanding the boundaries of its consolidation, but trading almost entirely between $67–$84 (using the September futures price).

Over time, we’ll find out more about the economy’s resilience. But we may not have to wait very long to find out how much conviction oil bulls have about it, or their willingness to push crude prices to new levels.

Market Mover Update: After Wednesday’s earnings release, Mattel (MAT) rallied more than 6% intraday on Thursday—popping above its July 13 high—before sliding into negative territory and closing near the bottom of the day’s range (see “Welcome to the trading dollhouse”). Hershey (HSY) broke down below its mid-July lows after announcing its numbers Thursday morning (see “Behind the earnings curtain”). Kenvue (KVUE) pulled back for a second day while keeping a high profile on various LiveAction scans for unusual options activity (see “Spin-off on the move”).

Today’s numbers include (all times ET): Personal Income and Outlays (8:30 a.m.), Employment Cost Index (8:30 a.m.), Consumer Sentiment (10 a.m.).

Today’s earnings include: Colgate Palmolive (CL), Chevron (CVX), Procter and Gamble (PG), Exxon Mobil (XOM).


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