Dead Money

The price action in crude today left much to be desired. In the span of just over 2 months crude hit the ejection button, catapulting from $70 to just over $99 intraday as measured by front month WTI. Since then, it appears crude hasn’t even reached for the parachute’s rip-cord yet. Even with the Canadian pipeline explosions, which drove crude prices up over $4 at one point during the day, oil could not muster a decent closing gain, closing at $91. That ain’t a good sign.

As I always say, markets zig and markets zag, they don’t zig and zig. That last rally is now in the midst of a correction of its own making, necessitated by the viciousness of its ascent, and it is unlikely that it is done, especially with the ForEx markets unwinding the Long Euro/Short Dollar trade. I hate the Dollar versus commodities, but I have no illusions about the Euro, which will have commodity inflation problems of its own.

This could mean a correction for Gold, too.

The longer-term story for higher oil prices is very much intact, but you can be shaken out of the best opportunities if you harbor unreasonable expectations – like expecting rallies to go on forever without interruption.

The trade now might be away from the commodity and back to the equities. Unfortunately, you might have to endure some pain before the pleasure.

On the other hand, this might be a short, and delayed, “shoulder period” price slide. After all, we are going into the teeth of the Northern Hemispheres winter, and China’s import appetite seems to be back with a vengeance, after a respite in September and October. That, and the fact that inventories continue to fall precisely when they should be rising – it is not cold enough for fuel oil and it is not the summer driving season – might make this correction somewhat short lived – though it could still be painful.

Have I run out of “on the other hands” yet? That’s the problem with trading for a living. You need those extra other hands to keep all those balls in the air.


Mentatt (at) yahoo (dot) com