Post by Savant on Aug 13, 2004 10:29:30 GMT -5
Exogenous Events Rattle Markets - Published 10:30 EDT August 13 2004
Election years tend to bring a bevy of surprises and this year is proving to be no exception. Many analysts got very bullish earlier on this year, because historically, election years have had a upward bias, often but not always finishing the year higher. It's what happens during the year that these analysts may have overlooked as invariably there is some kind of severe mid to late year selloff that usually turns out to be a great buying opportunity before a late rebound can carry prices significantly higher, into or sometimes after elections.
Right now World markets are at the mercy of five key "Exogenous Events". 1. The war in Iraq. 2. Terrorism. 3. Rising Interest Rates. 4. Perceived Slowing of Economic Growth and 5. Exponential Rises in Energy Prices. And last few days, we've had hurricane alerts.
This very morning, as a result of the falling dollar and rising energy prices, the US trade deficit widened to a blowout record 55.8 Billion deepening what is already a huge deficit chasm that is potentially unsustainable and will eventually have major implications for the US and World economies. But, thus far has not apparently had too much ill effect in spite of widespread dire predictions to the contrary. In fact over the past few days, record levels of investments were made in US treasury instruments potentially counterbalancing this trend.
The situation with Oil is really the exogenous event that is front and center at this time and definitely has a worrisome element to it, because the potential for some kind of spectacular blowoff in prices could occur before some kind of reversal kicks in.
The problem is two fold: Not only has Oil been rising increasingly rapidly, but stock Markets have been falling more rapidly of late as a consequence and therefore for this situation to come to a head and stabilize or reverse, some kind of dramatic overextension of both these markets appears possible to likely, although there is a slim chance that these trends are so close to reversing that some kind of surprise reversal could happen at any time.
Added to this, the onslaught of hurricanes can affect Gulf Oil and Natural Gas supplies as well as affect insurance stocks negatively and can have a domino effect on many markets as a result.
Last week we offered some Strategic Reasons as to why the price of Crude is almost singularly strong ahead of the rest of the Energy Sector and why that could be related to the Strategic Petroleum Reserve itself and also to the fear of disruptions rather than actual.
Technically, Crude Oil appears to be in the 2nd stage of a "Double Parabolic Blowoff", where the latter stage parabola is steepening and potentially accelerating in a very unpredictable fashion where the ultimate course can only be determined by this market blowing off and exhausting itself. Could we already be there? Anything is possible, especially when it becomes front cover or front page news...
That invariably means we are close to the end of a market trend or interim top at least of some kind. I would also describe the current crude oil scenario as similar to the mania that gripped Natural Gas prices in early 2003, when extra cold weather created a dramatic short squeeze, which culminated in an all time record spike of unprecedented proportions on February 25, 2003, when Natural Gas prices topped $11 per 1000 Cubic Feet.
Today Natural gas prices have traded at half of these former record price levels, so there is some hope for Crude Oil down the road and as we alluded to last week, we still maintain there is a glut in the making because higher prices are creating the incentive to pump like never before and even the Saudis themselves claimed this week to be able to pump an additional 1.5 Million Barrels per day, publicly stated there were no takers.
So why is the price of Crude still rising against this potentially growing negative backdrop? Either there is something really bad out there ahead of us that we still don't know or can't see or there are internal issues within the marketplace, ie: "The mother of all short squeezes in Oil" and Venezuela's referendum as well as many other unexplained factors that could come to a head at any time.
The Crude Oil chart has been very bullish with numerous Elliot Wavelett 1-2 that in many respects resembles the bull market in stocks of the early 1980's that got out of control in early to mid 1987. What happened thereafter, was the crash of '87, which took the wind out the bull market for a year or two before it resumed in earnest to the still heady levels we are at today.
The outlook for Oil could appear to be headed the same way, because even though longer term reserves have actually been rising due to major new discoveries, short term supply factors and World growth are actually creating an exponentially rising demand for Energy into the foreseeable future and this trend looks set in place for years if not decades to come, unless the World moves rapidly to implement alternative energy supply measures.
In Conclusion, one thing is fairly certain. Based on our analysis, the current 2nd or possibly 3rd stage parabolic uptrend in Crude Oil is close to a completion that can be measured in days or weeks at most. And when these ultimate parabolic uptrends are broken, the downside action could be unforgiving, once market sentiment changes and there is some kind of mad global scramble to get out of oil.
Have a Great Weekend
Happy Friday 13th
Trade Well
Savant
Election years tend to bring a bevy of surprises and this year is proving to be no exception. Many analysts got very bullish earlier on this year, because historically, election years have had a upward bias, often but not always finishing the year higher. It's what happens during the year that these analysts may have overlooked as invariably there is some kind of severe mid to late year selloff that usually turns out to be a great buying opportunity before a late rebound can carry prices significantly higher, into or sometimes after elections.
Right now World markets are at the mercy of five key "Exogenous Events". 1. The war in Iraq. 2. Terrorism. 3. Rising Interest Rates. 4. Perceived Slowing of Economic Growth and 5. Exponential Rises in Energy Prices. And last few days, we've had hurricane alerts.
This very morning, as a result of the falling dollar and rising energy prices, the US trade deficit widened to a blowout record 55.8 Billion deepening what is already a huge deficit chasm that is potentially unsustainable and will eventually have major implications for the US and World economies. But, thus far has not apparently had too much ill effect in spite of widespread dire predictions to the contrary. In fact over the past few days, record levels of investments were made in US treasury instruments potentially counterbalancing this trend.
The situation with Oil is really the exogenous event that is front and center at this time and definitely has a worrisome element to it, because the potential for some kind of spectacular blowoff in prices could occur before some kind of reversal kicks in.
The problem is two fold: Not only has Oil been rising increasingly rapidly, but stock Markets have been falling more rapidly of late as a consequence and therefore for this situation to come to a head and stabilize or reverse, some kind of dramatic overextension of both these markets appears possible to likely, although there is a slim chance that these trends are so close to reversing that some kind of surprise reversal could happen at any time.
Added to this, the onslaught of hurricanes can affect Gulf Oil and Natural Gas supplies as well as affect insurance stocks negatively and can have a domino effect on many markets as a result.
Last week we offered some Strategic Reasons as to why the price of Crude is almost singularly strong ahead of the rest of the Energy Sector and why that could be related to the Strategic Petroleum Reserve itself and also to the fear of disruptions rather than actual.
Technically, Crude Oil appears to be in the 2nd stage of a "Double Parabolic Blowoff", where the latter stage parabola is steepening and potentially accelerating in a very unpredictable fashion where the ultimate course can only be determined by this market blowing off and exhausting itself. Could we already be there? Anything is possible, especially when it becomes front cover or front page news...
That invariably means we are close to the end of a market trend or interim top at least of some kind. I would also describe the current crude oil scenario as similar to the mania that gripped Natural Gas prices in early 2003, when extra cold weather created a dramatic short squeeze, which culminated in an all time record spike of unprecedented proportions on February 25, 2003, when Natural Gas prices topped $11 per 1000 Cubic Feet.
Today Natural gas prices have traded at half of these former record price levels, so there is some hope for Crude Oil down the road and as we alluded to last week, we still maintain there is a glut in the making because higher prices are creating the incentive to pump like never before and even the Saudis themselves claimed this week to be able to pump an additional 1.5 Million Barrels per day, publicly stated there were no takers.
So why is the price of Crude still rising against this potentially growing negative backdrop? Either there is something really bad out there ahead of us that we still don't know or can't see or there are internal issues within the marketplace, ie: "The mother of all short squeezes in Oil" and Venezuela's referendum as well as many other unexplained factors that could come to a head at any time.
The Crude Oil chart has been very bullish with numerous Elliot Wavelett 1-2 that in many respects resembles the bull market in stocks of the early 1980's that got out of control in early to mid 1987. What happened thereafter, was the crash of '87, which took the wind out the bull market for a year or two before it resumed in earnest to the still heady levels we are at today.
The outlook for Oil could appear to be headed the same way, because even though longer term reserves have actually been rising due to major new discoveries, short term supply factors and World growth are actually creating an exponentially rising demand for Energy into the foreseeable future and this trend looks set in place for years if not decades to come, unless the World moves rapidly to implement alternative energy supply measures.
In Conclusion, one thing is fairly certain. Based on our analysis, the current 2nd or possibly 3rd stage parabolic uptrend in Crude Oil is close to a completion that can be measured in days or weeks at most. And when these ultimate parabolic uptrends are broken, the downside action could be unforgiving, once market sentiment changes and there is some kind of mad global scramble to get out of oil.
Have a Great Weekend
Happy Friday 13th
Trade Well
Savant
