Why oil could follow energy stocks lower

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Oil is hovering around the $65 level, but one technician warns that a sell-off in the commodity is imminent based on what he sees in the chart.

Energy stocks continued to fall Monday, and the group was on track for its worst two-day performance since August 2015. But things could get even worse for energy stocks, as Friday on CNBC’s “Options Action,” Cornerstone Macro’s Carter Worth pointed out that while crude has been trading within a parallel channel, it’s “failed at the high and also bounced off the low” multiple times. This suggests an even bigger downside for the commodity.

But along with key technical trends in crude, Worth also believes that the dollar is actually about to reverse course from its lows and bounce. On a chart of the U.S. currency going back to 2008, Worth shows that the dollar had actually broken out of a key support level, and looks to be falling back to that level again. He expects the dollar to bounce when it hits support, which doesn’t bode well for oil.

And given that the dollar and crude generally have an inverse relationship as Worth demonstrates in a chart comparing the two, this could be a sign that should this relationship hold, oil will move lower in the opposite direction.

“My presumption is we bounce here,” he said. “So the dollar [could move] higher, which would then, if the relationship works out, [allow this chat of crude and the dollar to converge].”

Even with Monday’s drop of 2 percent, oil is still up more than 5 percent year to date.

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