Chris Lau - Seeking Alpha

Thursday, August 21, 2008

So Much for Cheap Oil

I am feeling the disdain for tracking wildly fluctuating trading signals plaguing today's market. When it is up one day and down the next, it is like watching fish swimming around a fish bowl: there is no prediction in direction for markets.

Today, for example, oil rose $6 to $121.88 or 5%. This is in contrast to the sentiment that the bubble has popped for energy prices, and that the US dollars' strength was its pin. Concurrently, gold prices fell too and was thought to keep falling.

None of the big moves taking place should be taken seriously, bullish or bearish. The reason is that the volatility index has not reached extreme levels. There has been no sell-off or accumulation yet, marking any beginning or end of major trends.

One thing that needs to be noted, though, is that the sell-off in oil might be complete, and that oil prices might resume its upward trend. See the chart below.


The UltraShort oil ETF (above) broke down its uptrend, and is danger of reaching pre-run up prices. Notice the increase in volume on the most recent sell-off. This would mean that a play world economies will be faced with energy-induced inflation against a backdrop of tighter credit conditions. Look for oil prices to potentially rise an additional 12%.