The crude-oil breakout may induce sympathetic rallies in other commodities, triggering a broad "melt up," like the one we saw in 2008. Unfortunately, the world economy is far more fragile now than it was two years ago and could suffer badly if raw-material prices go through the roof.
Expect Wall Street to downplay the negative effects of a broad commodity rally, as it did in 2008, because it's out of touch with Main Street realities. Wall Street believes consumer buying habits will move in lockstep with stock prices, and nothing else. I believe that's a misguided view because $4 or $5 per gallon at the pump will take a big bite out of our already reduced purchasing power. Crude Oil Futures -- Weekly eSignal However, I'll temper my pessimism until crude oil reacts to resistance near $90 (red circle). The futures contract has been pushing higher in a rising channel since June, 2009, with that level marking the top of the channel, as well as the 50% retracement of the 2008 decline. A reversal near this barrier may induce a downturn that drops price back to channel support, currently near $73. That rollover would take a lot of heat out of the energy markets and dampen hedge-fund enthusiasm for momentum trades in other raw-material contracts, such as copper, silver, and even gold. Alternatively, a channel breakout above that price level would open up a world of hurt because the subsequent rally might not stop at "round number" $100. I believe crude oil is the most manipulated market in the world. This observation comes from an outsider (that's me), forced for years to watch ridiculous price swings that have nothing at all to do with supply or demand. Indeed, the CFTC's failure to control this unstable market since the 2008 bubble may come back to haunt it -- and us -- in coming years. Loading Comments... 1 2 3 Last » Next ›SHARE:
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