In all likelihood, my crude oil model will generate a sell signal at the close of this month.

The signal will in all likelihood will be profitable as the entry signal for the model was back in early October, 2010 when crude oil was trading at $80 a barrel. This is little consolation, however, as the high point (about $114) to the time of likely sell signal has been an unacceptable 20% draw down.

The concerns for lower economic growth appear to be real. Crude oil peaked when stocks peaked and bonds bottomed (i.e., yields moved lower). Whether this was due to lack of organic growth or financial stimulus fatigue (i.e., end of QE2) is difficult to state. Either way and as you can see in figure 1, the ETF proxy for crude oil, the United States Oil Fund (symbol: USO) is leading the market lower. In addition, the graph clearly shows the SP500 topping out and bonds, as represented by the i-Shares Lehman 20 plus Year Treasury Bond Fund (symbol: TLT) bottoming.

Figure 1. SPY v. USO v. TLT / daily