I'm way behind so I'll keep this short and not-so-sweet.
Today's "rally" was stupid, I said so all day. Even though we closed a full 16 points above my morning target of 12,850, I got very bearish during the day as oil looked poised to test $125 with CNBC running a day-long pump-fest, trotting out every oil bull on the planet to tell us how $200 oil would somehow be great for investors.
Are these guys on crack? I'm not sure, but I will say it again and again: There is not enough money on the planet earth to pay for $200 oil without taking that extra $3Tn OUT of the revenues of other industries. If you couple that with a conservative $2Tn worth of food inflation (caused by oil), then you are talking about a global depression where the only companies that survive are the oil companies.
Of course that's ridiculous as one would thing that wiping out every disposable penny on the planet would hurt the demand for oil and drive down prices – but that's not what energy traders believe! They are buying July $150 futures contracts in bulk!!! Forget the fact that we need a war with Iran to justify $150 crude (word is Bush is working very hard on this as we speak) – I am telling you the market cannot handle $125.
I see no justification for this rally and I said to members yesterday as CNBC had a discussion that $120 oil was a good thing for the economy: "Yet another BS justification. Come on guys – the last time we got this much "good news" about an investment from the media was housing… Oil $124.33 and a Rebel Attack in the morning should punch us through $125."
I was bearish much earlier than that though, at 11:16 I said, regarding whether it was a good time to enter Apple: "I don’t think anything is ready for an entry right now." We decided to roll our oil puts up (to higher strikes) and out (to longer months) and sell front-month puts against them as it was obvious crude was going nowhere but up, despite a good build in natural gas at 10:30. At 11:25 I warned: "Don’t forget that until we bounce more than 50% of yesterday’s drop this "rally" is nothing so we need 12,900 at least ."
At 2:32, into the NYMEX close I said: "Wow they jacked oil up to just under $124! Bye bye markets…" and 1 minute later I posted: "Homework assignment for tomorrow is to look at all your spreads and think whether or not you have sold as much premium as you can stand to cover with for the next 5 days." My 3:25 prediction for tomorrow was: "Oil $124.33 and a Rebel Attack in the morning should punch us through $125" and my final word at the close was: " I am just blown away that we’re not down another 200 points on this (the BKX is at the 5% rule though, they’re not as stupid as the rest of the market)."
I hate to go all bearish but our bullish premise was that there would be intervention that strengthens the dollar and that something would be done to stem the tide of foreclosures (910,000 since Jan 1st) and that oil would back down and put some money back into consumers' pockets. With Bush vetoing the FHA package Congress has spent months putting together and the dollar still at its lows (remember any time McCain goes up in the polls, foreign investors dump dollars) and oil now up $20 in a month, this is simply no time to be bullish.
Hopefully we'll find a reason tomorrow…
