One Year: Oil vs Small Caps vs Blue Chips

Its almost the one year anniversary of the all time high in the dow and an important low for oil and I thought it would be interesting to compare these two benchmarks with the small caps. First check out oil, it remains solidly in a long term uptrend. Even with the recent 22% decline in crude prices, oil is up 65% over the last year! Crude has pulled back from it's "super spike" and is getting close to the rising trendline where the rising 200 dma also lies at $110. That level could provide enough support to at least bounce the oversold oil.


The small caps actually look pretty decent. Over the last year the Russel 2000 index is down only 7%, that seems incredible to me with oil having more than doubled and all the global economic problems. I've always said the small caps led the market and they looking strong after closing above the 50 and 200 dma on Friday. On the other hand, the long term downtrend is still in place, look for a trend line test any day now. The small caps had a similar breakout in early June, that failed and led to a brutal selloff.


Of the three, the Dow Jones had the worst one year performance and the ugliest chart by a long shot. The blue chips are down 11% which still seems not so bad given the 115% rise in oil, etc. As you can see below, the Dow is well below its long term trend line and 200 dma but did close above the 50 dma Friday. There seems to be some similarities in the recent rally to the one we had earlier this year. After the Dow broke out of that flag I mentioned yesterday it looks like it wants to test 12k before heading lower again.

On thing that would really make me cautious on the market right now is that the Dow only rallied 7% since oil topped and fell 22%. Investors know oil is still up huge year over year and other issues like crumbling financials and crashing home prices persist. Is oil going to have to drop another 22% just to get the Dow up another 7%? The small caps are the only bastion of strength in the market right now but I have heard that sector experiences the biggest bear market rallies because lower float make finding shares to borrow harder. At any rate, we should know if long term trends are changing soon because trendlines approach.