After trying to hold steady, oil broke down into the $35.00 per barrel handle when a wire service reported one noted bearish oil analyst as saying he was calling for $35.00 per barrel for a near-term target. Who was that noted an analyst? Well, c'est moi. That’s "me" if you can't speak French. I got calls from people all over telling me I broke the oil market. Maybe it was a coincidence but then again maybe not!
Oil is still struggling to find a direction or perhaps a bottom and seemed to lose hope when Dow Jones Newswires and Reuters reported on my comments I made at the Annual Alaron Commodity Outlook. In my speech I said that oil had a near term target of $35. Before this comment hit the wire, oil was trading in the $39.00 handle and broke hard after the news story hit the wires. Timing is everything, especially in futures trading and when bullish traders have been so badly beaten, it does not take much for them to lose hope and run for cover.
Now obviously it's possible that my comments had nothing to do with the break but it sure seemed like it did. Of course I have to admit that the market was weak anyway. With the January crude oil expiring today, contango pressure is making it harder for the bulls to make a stand and probably meant that we were going to break anyway. Heck, oil could not even break up into the forties. At the same time, just months ago, oil seemed to spike when Goldman Sachs made bullish projections. When that happened, many said it was the tail wagging the dog. It seemed that the market was following Goldman as opposed to Goldman following the market. Traders can be influenced in times of uncertainty as they struggle to find direction. And even if it seemed in the past that the market was following Goldman comments for a day or two - or my comment yesterday - over the long run, the market is going to do what it is going to do regardless. Can these comments and projections move the market? Absolutely, but only if the majority of traders had a sinking suspicion that the projection is probably right. In other words, for a bull trying to pick a bottom and feeling uneasy, a comment on direction from someone who has been right and credible at the right time may be enough for them to cover. If I make projections every day I won't move the market but it is possible that if all the stars are in alignment, it's possible I can have an influence but only if deep down inside those comments they reveal the deep seated aspirations and fears of the market at that particular time. In other words, the market was looking for an excuse to break and so it was a sell off waiting to happen. It just needed one spark and yesterday it appears that yesterday I might have been it. Of course, if it wasn't my comments it would have been something else. A weather story or an OPEC story or perhaps a story about Frosty the Snowman, yet I have been out there and have been bearish and the market is paying attention.
Now it looks like $35.00 is high as the front month crude is failing and hitting the $33.00 handle. Expiration is adding to the tension as the last standing bulls are being forced to cover. Monday the bulls get a break with the February giving them a head start on the new contract. The global slowdown is a story being told in the action of the oil market and today in a story in the New York Times.
In an article by Jim Yardley titled, "After 30 years, Economic Perils on China's Path" Jim writes that, "The ruling Communist Party threw itself a big party on Thursday. The country's leadership marked the 30th anniversary of the reform era that transformed China into a global economic power and, in doing so, changed the world. At a triumphant ceremony at the Great Hall of the People in Beijing, President Hu Jinto invoked Deng Xiaoping, who consolidated power in 1978 and began "reform and opening." Mr. Hu emphasized the party's unwavering focus on economic development. "Only development makes sense," said Mr. Hu, quoting Deng." But beyond the oratory, Mr. Hu and other Chinese leaders are now facing a new era in which Deng's export-led economic model, as well as his iron-fisted political control, face unprecedented challenges. Global demand for Chinese goods has slumped, unrest is on the rise in the industrial heartland, and China is scrambling for a new formula to preserve stability and ensure growth.
The downturn is so swift - exports fell last month for the first time in seven years - that Beijing is being forced to shift priorities abruptly. Until recently, Mr. Hu had been trying to curb excesses like rampant pollution and income inequality that posed environmental and social challenges to long-term development. Now, those priorities seem eclipsed. Instead, leaders are restoring tax breaks for exporters and pushing down the value of China's currency to encourage exports. At the same time, they are casting about for ways to spur domestic demand and wean China's economy off its dependence on foreign markets swept up in the global financial crisis. Politically, Chinese reformers had hoped the symbolic weight of the anniversary and the nation's post-Olympic glow might propel some measure of political reform to address official corruption and help defuse rising social tensions. But as Beijing worries about strikes and mass layoffs even in some of its most prosperous areas, official tolerance of political dissent has seemingly narrowed. This month, a prominent dissident was detained after writing an open letter calling for greater democracy. An editor at one of the country's leading newspapers was reassigned after publishing articles deemed too politically provocative. "We must draw on the benefits of humankind's political civilization," Mr. Hu said in his Thursday speech, according to Reuters. "But we will never copy the model of the Western political system." On Thursday, the country's official news agency, Xinhua, reported Mr. Huang said the government's focus on exports and expanding the role of state-owned corporations since the 1990s had meant too little of the country's wealth had trickled down to ordinary people. He said household incomes had lagged well behind overall growth, meaning that hundreds of millions of ordinary people still had relatively little spending money, a major problem when the government is trying to increase rapidly domestic consumption. "It's a huge challenge," said Mr. Huang, author of a recent book, "Capitalism with Chinese Characteristics." A must read in the Times about the State of China.
We're short February crude oil on triple rollover from approximately 4461 - stop 5100.
We're long January heating oil from approximately 14400 - stop 13500.
Stopped on long January RBOB from approximately 9000 at approximately 10000!
Buy January natural gas at 510 - stop 470.
Let it snow, let it snow, let it snow! Have a GREAT day and weekend!
Phil Flynn
pflynn@alaron.com
www.Alaron.com
(800) 935-6487
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