Over the past several trading sessions, I’ve been negative on oil as several indicators were telling me it was getting extended. When this happens and an investment keeps going up anyways, that tells you how strong it is. I said I was negative but wouldn’t short it. This is exactly why. Rarely have you been rewarded shorting oil lately. In addition, there is a lot of skepticism on oil prices by the smaller investor. The more people doubt it, the higher it’ll go. It’s like a freight train.
Perhaps $134 oil is the tipping point. It seems in the past two days, investors don’t believe we can sustain a reasonably growing economy with oil at $134. Who knows. I think the market falling is more a function of it’s simply ready to go down. It’s been going up on weak internals and extreme optimism. It went up further and longer than I thought.
The Dow’s down around 200 today and the volume is a little heavier than we’ve seen but still very low in comparison to a few months ago. We have about 80% downside volume today. Technicians are watching the S&P 500 fall below its 20-day moving average. If this up market is the beginning of something bigger, the S&P 500 should only give back half of its gains since the March lows. That would be around 1350. I believe it’ll be something bigger and we’ll drift down over the next few months until investors are frustrated enough to give up on stocks.
So what’s strong today? What else, energy and gold. Enough said.
By the way, for those of you in Houston, I’ll be in town next week at The Museum Of Natural Science along with Mike Norman, Daniel Frishberg, & Del Walmsley. For more information, click on http://www.bizradio.com/home.php?p=HMNS
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