I'm not an Elliot Wave guy, but I am using a combination of technical, fundamental and gut. I am the first to admit that some of the following assumptions (in no particular order) are way too early to say with conviction. With that said...here it is.
We have a possibility of oil attempting what would look like an inverted head and shoulders if it plays out right. I figure we should hit some nice resistance at $50 and back down from there. This creates a nice set up for a Spring/Summer rally that will first test, then break old highs. I suspect this will be the catalyst for a US/Global Recession by 2006.
Fundamentally oil supply - or at least what can be processed - is not meeting demand. The recent news of China and India aggressively securing energy needs is compelling. Oil by virtue of its importance is virtually inelastic. Even at $100/barrel, don't expect people to drive less or change their lives significantly. Alternative energy, things of that sort will take some time to come to market so while in the long-run human ingenuity can find a way, we're screwed in the short-run.
One has to ask why gold and oil stocks have been moving inversely for some time now. Quite simply rocketing oil prices will be deflationary as they will probably catalyze massive deleveraging for the millions with with weak personal balance sheets. It is said that the house is the last asset that people will sell. I'd argue that a car is far more influential to our existence then whether we own or rent.
Hence we currently see stable bond yields, shaky base metals, falling cyclical stocks, weak leading indicators, yada, yada.
The current US recovery is one of the weakest, if not the weakest on record. The reasons don't have to be re-hashed. It just takes one thing, just one, to bring this house of cards down. Our Achilles Heel is oil and the markets have a funny way of exploiting that.
Unlike Mish, I am in the "deflation is bad for gold camp". The reasons above correlate well as to why it's falling and will probably continue to fall untill deflation is so severe that people lose their trust in the "system". But that's a long while (if ever), so I'd much rather hold dollars or oil dollars until then.
Does this make me an "oil-bug"? <gg> |
