Is Oil Another Bubble?

Bennet Sedacca  Apr 22, 2008 1:15 pm

Is Oil Another Bubble?
 
How to handle the moves in crude.
 

 
I highlighted months back that the Shanghai Shenzen Index looked like a parabolic top. I was mostly greeted with "It's different this time," and that China was immune to the rest of the world's problems. Apparently not, as it's fallen 50%.

However, take a look at the chart below. China is possibly in a spot where it could bounce, but still within the context of a bear market in which all rallies should be sold.


Click to enlarge

But how about oil, called "Earl" in my neck of the woods? It's still parabolic and I'm not yet trading it. Here's why (this is something Minyan Peter and I were chatting about yesterday): Markets can remain irrational longer than you can be solvent. So you don't just short during a parabolic move. Sell your longs? Absolutely, because when they turn, it's usually a vicious move, particularly with a commodity.

The key is to wait for a sharp reaction down, an unsuccessful retest and then short it with a stop above the old high. The chart below is an updated version of crude from yesterday versus the Naz.


Click to enlarge
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Comments (7) See All Comments »
04-22-2008, 11:21 pm
The bad thing is that the dcr shares will be liquidated in June due to oil's surge, so it sounds pretty risky to get into something that is closing shop.
Charles
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04-23-2008, 1:59 am
While I do not claim to be an expert on any macro-economic phenomenon, I fundamentally and perhaps intuitively understand supply and demand. I also am a revered fan of statistics. My conclusion - if supply limitations are real and not similar to th
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04-23-2008, 1:26 pm
Regardless of longterm supply considerations, fact that it has run so far so quick means a lot of itchy traders will be looking to lockin their gains. Any harm in shorting now if youre willing to wait atleast 6months? Anybody believe that we will nev
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04-23-2008, 2:13 pm
Oil is too volatile to trade sideways. So it will keep trading way up (inflation, weak dollar, supples peaking, demand up) or plunge 10% (are all of the above enough for the huge ramp-up we have seen?).

I think that the dollar will rally
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04-23-2008, 5:51 pm
The real economy is the one where people make stuff, drive places, and do things with energy.
There isn't an appropriate replacement for oil in the offing at this time.
As oil gets more expensive, we won't be able to plant as
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