Stock markets in the US reached another milestone this week, as the S&P 500 passed its 2007 record to reach highs above 1570 on the last trading day of the quarter.    This essentially means that stock markets in the US have erased the losses created by the mortgage-backed security crisis, with the S&P rallying more than 130% from the 2009 lows.  These gains have been created largely by bond buying programs from the Federal Reserve’s, interest rates cut to historical lows and steady improvements in corporate earnings.The interim period saw the US in the midst of its worst recession in over 70 years, and this latest performance is showing that investor confidence is supportive despite external risks and general weakness in growth data (relative to long term trends).

This week’s US GDP report, however, did manage to pass the expectations of some analysts (coming in at 0.4% for the yearly rate).  The figures also showed an improvement on the numbers from the previous quarter (0.1%).  This was enough of a catalyst for investors to ignore the potential market disruptions caused by the reopening of banks in Cyprus and push the benchmark indices ahead in this year’s rally.  The positive sentiment has also been favorable for energy markets, with oil prices hitting six week highs on changing demand expectations.

Bullish Arguments for Oil Back Above $100

While GDP growth at 0.4% might leave some questioning how stocks can be posting new record highs, it should be noted that most of the economic data does support the recovery story for the US economy.  Last month’s employment data was well above recent averages.  Earlier this week, Durable Goods orders and the Case/Shiller Home Price index  showed improvements for real estate values in the 20 largest cities.

All of this bodes well for the energy space, and some confirmation was received with yesterday’s EIA report which showed that petroleum demand rose by 6.2% (to 18.9 million barrels per day).  These are the strongest figures since early February and serve as an initial indicator that oil is now firmly on the road to trade back above the $100 level.

Chart Perspective

Oil:  

Oil prices closed at their highs for the month, with the latest rally showing very little in terms of downside corrective retracements.  Next area of resistance comes in at 98.15, which is the only real barrier en route to the psychological 100 level.  Upside momentum is clearly bullish with “buy on dips” strategies the preferred method for playing the uptrend.  First support comes in at 96.05, which is the 23.6% Fib retracement of the rally from 91.80.

Exxon Mobil (XOM):

The bull trend in oil is supportive for XOM as well, but we will first need to see prices break outside the daily symmetrical triangle to confirm the positive bias.  First resistance comes in at 90.90, with initial support now seen at 89.40.  The latter area is acceptable for short term buy positions until the wider triangle break is seen.  Given the proximity of price action to the 100/200 day EMA cluster, the expectation is for an upside triangle break.  Also supportive of this bullish bias is the P/E valuation in XOM, which continues to hold under 10.