Pretty much all the negative data coming out regarding the consumer and retail sales is tied to the cost of gas. Is there some light at the end of the tunnel? On a purely contrarian basis: yes. Find me a media outlet that is not calling $80 oil and above a "given" short term, and I will gladly post it here. And when everyone gets very certain about something, I turn a little bit contrarian. Don't get me wrong, $80 oil might become a self-fulfilling prophecy short-term, but just like Dow "new all time highs" was a "given" only a few month ago, I get a little uneasy with herd-like agreement. Fundamental reasons? Yes and no. Yes on a short term basis, no on a long term basis. Yes short term because a few factors are entering the equation which could alter what the market seems to be pricing in at this time. Increase in Iraqi oil production, lighter than expected hurricane season and a cooling off of geo-political tensions. Any two of those factors will give us a quick $5 drop in crude prices. I don't want to make a fool out of myself with a prediction on weather, but again, the contrarian in me is seeing the bad news getting priced in and absolutely zero good news being considered. Keep an eye on the weather patterns, a good link is provided at the end of this article. No on the longer term picture, and that is for obvious reasons. Unless we fall into a recession ( I don't buy that quite yet), demand for oil will invariably outstrip supply and prices will keep rising, although a slower economy will act as a temporary ceiling. But $80 is bound to happen. Eventually.
As for the chart, 74.20 failure on Friday was an eyebrow raiser. Watch that level. If oil bulls fail to close another day above that, we will see a drop to the mid 72 area. This could spell relief for stocks, especially tech stocks if they can avoid another big name warning. That is not a given, but again, I think it is getting priced in as well. In fact, many companies are poised to beat already reduced projections and if that happens, the short-squeeze we saw in late June and early July will be repeated, if not surpassed in intensity.
Of course, everything the oil bulls and equity bears are predicting and placing huge bets on could come to pass and we will fall over the edge of the cliff. Maybe. But I tend to think that will happen when everyone least expects it, just like after the big summer rally of 1987. That is when I will turn very bearish indeed. Nevertheless, watch the charts and support levels, they are the final arbiter.
This entry was posted
on Sunday, July 09, 2006 at 12:19 AM.
