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-- Posted Wednesday, 28 May 2008 | Digg This Article | Source: GoldSeek.com

Rick’s Picks

Wednesday, May 28, 2008

“Phenomenally accurate forecasts” 

Oil quotes zigged and stocks zagged yesterday, but the net result was not quite what we would have predicted. With July Crude off a whopping $3.34 on the day, we might have expected the Dow to leap with exuberance, given that investors have been consumed by worry lately about the skyrocketing oil prices.  Instead, the Dow finished the day with a modest 69-point gain. What this suggests is that investors don’t trust a mere one- or two-day selloff in energy futures. Is it perhaps because, each time this has occurred in the recent past, prices have rebounded to new highs with stunning speed?

We have no doubt that a dramatic fall in the price of oil would be bullish for stocks. But judging from yesterday’s price action in the latter, the decline would have to be sustained and significant in order to coax wary investors from their bomb shelters. A week during which oil futures have fallen by, say, $20-$25 would probably do the trick. But is this likely? From a Hidden Pivot perspective, despite yesterday’s selloff, odds are still with energy bulls at the moment, since July Crude has an outstanding rally target $2.40 above the recent record high at 135.09. Moreover, in off-hours trading Tuesday night the July contract was turning up without having even gotten close to the 126.48 target of a corrective leg. So far, the bullish turn has come from a low of 128.10, implying that yesterday’s decline may have exhausted short-term sellers.

Duck and Run

Our bullish outlook would change, however, if the July NYMEX contract, currently trading around 128.75, were to fall below 123.74 today. Alternatively, a thrust above 129.46 would be warning bears to duck and run. Speaking of bears, a CNBC guest yesterday suggested that oil players with a high tolerance for risk should start shorting crude in such quantity as to burden buyers with the realities of supply. While we agree that the rally long ago exceeded such rationalities, the violent force and persistence of short covering in recent weeks could conceivably leave even the Saudis hung up on the ropes if they were to try to impede it prematurely.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Wednesday, 28 May 2008 | Digg This Article | Source: GoldSeek.com

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