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Trannie Swan Dive to Take Down Crude Oil

Posted By Barry Ritholtz On August 3, 2011 @ 6:00 am In Index/ETFs,Technical Analysis | Comments Disabled

The Dow Transportation Index [1] was down almost 4 percent Tuesday and if there is any silver lining  in the current market turmoil is that Trannies usually lead crude down [2], which will drop gas prices.  The chart below shows the 12.2 percent swan dive in the Dow Transports since July 7th with crude oil barely moving.  We’re expecting a catch-up trade to the downside for crude oil in the next few days.

If oil falls,  the price of gas falls, which acts as a tax cut for the consumer — the good kind of stimulus!   See here [3] for our gas price sensitivity matrix on consumer budgets.   A person who  drives 70 miles per day, for example, saves around $1,500 on an annual basis for every $1.00 decline in the price of gasoline.    All bets off if the Fed cranks up QE3.

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URLs in this post:

[1] Dow Transportation Index: http://www2.barchart.com/chart.php?sym=%24DOWT&style=technical&p=DO&d=X&x=71&y=11&sd=&ed=&size=M&log=0&t=BAR&v=0&g=1&evnt=1&late=1&o1=&o2=&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump

[2] Trannies usually lead crude down: http://macromon.wordpress.com/2011/01/06/direction-of-crude-oil-watch-the-trannies/

[3] here: http://macromon.wordpress.com/2011/03/02/the-tax-on-consumers-of-higher-gas-prices/

[4] Image: http://macromon.files.wordpress.com/2011/08/trannie-and-crude.jpg

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