Sunday, March 06, 2011

Oil and the Market

We're coming up to a point of inflection in the market as the USD is getting hammered on a daily basis, crude is over 105 and Brent over 116.   Something has to give soon.  The only way, we believe, the market can regain its upside momentum is if oil lets up.  With oil above three digits expect what we have been experiencing in the last 2 weeks, as illustrated very well by the following chart, nervous chop.  Nevertheless considering how much the market has run from the March 2009 bottom,  it's a testimony to its strength and the stickiness of its trend that it hasn't given back more with the significant sudden rise in crude.    A fragile economy just starting to recouperate and $100+ oil is not a good combination.   The economy can handle a crisis induced temporary rise but can it handle these prices (and the coming food price hikes) on a longer term basis? 

When we trade the ES these days we do it alongside CL_F.  The inverse correlation has been very strong the last few weeks and until this subsides, active traders need to have crude front and center of their screens.