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Monday, September 17, 2012

Oil Is Rallying, Don't Let The Headlines Convince Otherwise

http://simpsons.wikia.com/wiki/Bart_vs._Australia
The same 'guys' that couldn't see the oil rally coming are now telling us not to expect the boost to last. Experienced traders see this setup as the blind leading the blind. That's how the game works and why most traders seeking advice outside the message of the market often end up with a big boot wedged between their butt cheeks.

Oil's rally will defy the headlines as long as paper fuel exists to push it higher (chart). I expect the rally to push oil's diffusion index (DI) from one statistical extreme to another. Oil generated DI reading of 71% on 7/17 at $89.22. The subsequent rally which suprised both experts and investors pushed DI and price -5% and $97.17, respectively. The trend will become statistically exhausted when DI exceeds -60%.  This impulse wave should at least test -40%.

In addition, Jim's latest commentary (Has Iran Finally Overplayed Their Hand?) raises some important points about a nuclear Iran, geopolitics, and the quiet movement of troops around the world.  His timely points must be considered when discussing oil's near term prospects.

The invisible hand's aggressive accumulation of oil in July 2012 despite a long list of top callers and growing signs of global economic slowdown proves yet again to be sharp as a razor within the rather dull world of headline experts.  Perhaps the invisible hand knows something that will become obvious to world only well after the fact.

Chart:  Crude Oil (WTI) and Crude Oil Diffusion Index (DI)


Headline:  Oil breaks $100, but don't expect QE3 boost to last

Fresh stimulus action from the Federal Reserve drove commodity prices sharply higher Friday, but experts say don't expect the QE3-fueled boost to last long.

Crude oil prices briefly topped $100 a barrel for the first time since early May Friday morning, as investors grew encouraged after the Fed announced a third round of quantitative easing, or QE3, saying it would buy $40 billion of mortgage-backed bonds each month for however long it deemed necessary.

The Fed's open-ended bond purchasing program came just one week after European Central Bank president Mario Draghi said the ECB is prepared to buy euro area government bonds in the secondary market to help preserve the euro and stave off a deepening crisis in Spain and Italy.

Gold prices also rose to to a seven-month high of $1,780 an ounce before settling at $1,772.70.

Source: money.cnn.com


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