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Always look at the bright side of life

Wed, Oct 8 2008, 16:34 GMT
by Phil Flynn

Alaron

Hey, look at the bright side. The market did not crash. It got smashed but a smash is not a crash. As trite as that might sound the difference from a market perspective and a physiological perspective can be enormous. Can a last hour rebound in the Dow Jones and S+P 500 mean that indeed the financial world might not be coming to the end? It probably does. Regardless of what you might think and despite what may or may not happen today, that rebound means that there may still be signs of life in the old economy after all.

Still that does not mean we will not be subjected to more pain but whatever pain we feel at this point may be less than the rest of the globe. Take as a case in point the emerging markets that took their biggest hit in almost 20 years. BRIC fell like a brick and the people who held the belief that the rest of world had decoupled from the late great US economy felt like they were hit in the head with a brick. From day one I told you this theory that the world had decoupled from the US economy was nonsense as well as the belief that no matter what happened to the world’s largest energy consumer that oil demand in the emerging markets would grow regardless. Can we now put those false notions to rest?

The rebound in stocks helped bring oil back from the brink of actually giving up all the gains it made for the year. The low for oil for the year is $86.11 and oil came very close to that level. Just think about this reversal of fortunes of this market. Remember the predictions of $150 a barrel oil or $250 oil and even higher just weeks ago. Now oil might actually end the year lower than where it started the year.

After being an oil bull for most of this decade it has been tough to be a bear this year. Despite the fact that we were early everything we said would happen has come to pass. Once again in the end the laws of supply and demand have not been rewritten. High prices still cure high prices especially when those prices are not driven by strong economic growth. And there are the peak oil believers that told us this year was different because the world is running out of oil. Well we might not ever find out if oil is truly running out or not because high prices have adjusted demand so now we are driving towards alternatives.

What about OPEC, can they save the oil market from falling? Well to be honest even if they cut production the market might not care. Oh sure oil might rally big for a day or maybe a week but soon the cartel will find that a rally would be unsustainable. Economies in turmoil will not pay artificially high prices for oil for very long and consumption would fall.

Still today we may see a bit of a rally as the market will look to defend the lows for this year. If stocks rebound oil may mount a rally but barring any major disasters we are headed much lower. What kind of disasters? Tropical storms or hurricanes for one. Tropical Storm Marco may not be a threat but it is not a help. US energy output is still cut in half after Ike.

According to the Financial Times Russia will, “try to mend fences with the west after the conflict in Georgia by brokering more foreign direct investment deals amid fears that the country faces stagflation.” Nothing like an economic crisis to make Russia feel all warm and fuzzy towards the west.

We're short November crude from apprx 10800 - lower stop to 9500!!!!

Sell November heating oil at 28500 - stop 29000.

We're short November RBOB from apprx 26500 - lower stop to 23000!!!

Buy November natural gas at 670 - stop 640.

Have a GREAT day!

Published on  Wed, Oct 8 2008, 16:36 GMT