THE DOT - if this turns orange or red be alert

Saturday, May 24, 2008

The oil trap

Trading against Insiders is not an easy enterprise since the luxury of one's own thoughts can be contra-productive. Big loads of misinformation through the governments institutions and interest groups will create some confusion (thats the intention).
I am following the markets now for 22 years and as a professional for 20 years and the manipulation techniques have been refined over time but nowadays we are falling back to simplistic lies (just pretend the most obvious is not true ) more importantly to survive and make a success depends on the discriminating act of what you think is going on and what the crowd believes or is made to believe. since that will be what the markets will do until the goal is achieved which might lead to the opposite result since the campaigns (fairy-tails) can be motivated on different levels, e.g. the fairy tail of low inflation was constructed to save the government hundreds of billions every year. USA ows around 8Tril. and pays interest based on 4-5 points artificially lower inflation = 360 Bil. lower interest payment - good for the Nations debt but bad for the people of the nations because he gets taxed indirectly - that eats away buying power of the average consumer since his savings loose buying power on many angles (his wage increase are notoriously too low and his savings are rewarded with too low interest)

Lets come back to the real markets for now contradicting information about the oil and commodity markets are running through the media but as a matter of fact although OPEC has a extremly high interest in high prices their statement that the surge is not driven by physical demand is closer to the truth. Hugh institutional money is now in the game:

Excerpts from a homeland security subcommittee hearing

1. Index Speculator Demand Is Driving Prices Higher
Today, Index Speculators are pouring billions of dollars into the commodities futures
markets, speculating that commodity prices will increase. Chart One shows Assets
allocated to commodity index trading strategies have risen from $13 billion at the end of
2003 to $260 billion as of March 2008, and the prices of the 25 commodities that
compose these indices have risen by an average of 183% in those five years!

2. In fact, Index Speculators have now stockpiled, via the futures market, the equivalent of
1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own
stockpile as the United States has added to the Strategic Petroleum Reserve over the
last five years

Well from a fundamental perspective its strange that the US government supported the rising prices buy being a buyer for strategic reserves at the highs - they just stopped a week ago. Since elections are close at some point it might be reasonable and likely that strategic reserves are thrown on the market.
From a technical and astrological perspective within 2 weeks we should see an intermediate top in the 135-140 area and the following correction should bring us down to 100-05 (38,2% retracement) within Q3-Q4. This will be one of the reasons for the next leg up in stocks in the same period.
For now against the contradicting call from Goldman ( who made many wrong calls recently?? like 1160 before 1360 in the SPX) buy in May and sell Labour day the technical picture is showing south clearly with a bias on financials which should retest the lows (XBD, BKX) before a rally in Q3 starts. The SPX has reached first target at 1370 but very likely will drop to 1310 before the 2nd leg of the rally starts. Some Momentum and sentiment indicators are far too bullish (Rydex,MACD, etc) and gave sell signals with a VIX making a bottom. Expect consolidation with a negative bias through June.
Have a good week

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I am a professional independent trader