Oil Prices Are Important, But Gasoline Prices Dominate Market Action
Anytime there is a geopolitical event taking place in the Middle East the price of oil seems to surge higher. That was the case recently as light crude oil futures (CL) jumped as high as $112.24 a barrel. Higher oil prices certainly hurt the U.S. consumer, but as long as gasoline prices do not climb rapidly the major stock indexes do not seem to react negatively.
Traders and investors can easily see that gasoline prices spiked higher in mid-July and then again on August 29, 2013. The S&P 500 Index topped out on August 2nd, 2013 and then bottomed out on August 27, 2013 when gasoline prices peaked for the second time. Once gasoline prices began to pullback the major stock indexes took their cue to move higher again.
Now it is important to see where gasoline prices are going to find support on the chart. If we look at a chart of the United States Gasoline (NYSEARCA:UGA) we will see that the UGA should have some near term daily chart support around the $57.90 level. The next important daily chart support levels for the UGA are the $53.05, and $50.00 levels. It seems that the public tracks oil by looking at the gas pump. If gasoline prices bounce higher that is when stock indexes will usually come into selling pressure.
If you ask the average person on the street what the price of a barrel of oil is they will most likely say they do not know, but they do know what they are paying for a gallon of gasoline. Remember, the U.S. consumer accounts for roughly 70.0 percent of the U.S. gross domestic product(GDP). In order for the economy to improve the U.S. consumer must spend money, if the U.S. consumer cuts back on spending then the economy slows down again. Traders should follow the action in gasoline as it will tell us a lot about the stock market movements of the future.