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Retreating Crude To Put Shine Back On Gold Rod David May 29, 2008 3:45 pm |
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Crude Oil (basis July) has been tracking a distributive template for the past two-three weeks. This was somewhat of a secret while prices continued probing higher highs. The first sell signal didn't trigger until closing under $130 Tuesday.
Today's rejection of the initially favorable inventory reaction tells me that the distribution isn't a secret anymore. It also tells me the rest of the template is probably also correct, that the resulting downleg will be steep and deep as the paradigm shifts quickly.
If my template does continue to track and crude oil dives precipitously in the near-term, the mainstream assumption is this will be good for S&P. Really? The same S&P that has now retraced half of the recent 70-point tumble? Perhaps tumbling oil prices will be "good" for stocks in only the same way that today's inventories report was "good" for oil prices - i.e. briefly. Somehow I doubt that equity analysts will be quick to raise earnings estimates based on potentially lower energy costs.
So where is all that oil money to go? Gold.
I should say upfront that I'm not calling for gold's bull market to resume. In fact, there's a gap down to the 862.00 area (basis August) that needs to be filled, along with a retest of the last downleg's 856.00 target. But the pattern did trigger a sell signal under $918 Monday, and the first downleg's target was fulfilled this morning under $879. The target has been probed deeply enough that a close back above $879 would trigger a buy signal - for a correction, but a buy signal nonetheless.
If crude oil is crashing, then managers and investors alike will be looking for a replacement inflation vehicle. And the sheer size of crude's rally/bubble suggests that many of its participants won't be interested in getting too exotic. Meanwhile, there's a shiny golden lump falling back to earth. It has some more falling to do, but there's room to squeeze in a bounce up to 905.00 first.
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Rod publishes his setups intraday on a blog at IfThenSignals.com, where he also hosts a live "charting room" webinar to graphically depict his patterns and targets in real-time. Rod welcomes your comments and feedback at rod@minyanville.com.
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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any article or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
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