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Oil Prices

OPEC Chief Oil minister predicts $170 before the end of the year . The story is rom Business Intligence Journal. One striking quote on speculators driving up oil prices at the end of the story.

The US House of Representatives on Thursday overwhelmingly approved legislation that directs the Commodity Futures Trading Commission to use all its authority, including the agency’s emergency powers, to “curb immediately” the role of excessive speculation in energy futures markets.

Peak Oil is the root cause of higher oil prices . Both the role of speculators and the falling dollar also contribute to higher oil.

If congress were to succeed in limiting speculation on oil we would see a pretty significant fall. Wild guesstimate 25% (there is no consensus out there some say 0% and others 50%) The major problem here is if you put specific regulation one commodity market what about all the others? My guess is that this is congress blowing wind, or laws do not allow them to get involved.

Anyhow oil prices responded Friday by going up. So I guess speculators are not too worried about what congress did.

Stocks

Index % Change Volume

Dow -0.93% up
NASDQ -0.25% up
S&P500 -0.37% up
Russell2000 -0.04% –

US Markets

There is good technical news in yesterday’s trading. Thursday saw a major meltdown and the major indexes held added a bit to those losses. That’s usually bad technically. However, Friday saw huge volume. Considering summer trading is historically light this makes the volume even more significant. Huge volume days where the markets move very little is called “churning” and technically indicates a reversal.

Part of all this volume may be due to the fact that today is both the end of the month and the end of the quarter. Portfolio managers are taking profits and buying what they think investors want to make their portfolio’s look good.

Officially the Dow reached a “Bear market status” – this is usually defined as a loss of 20% from a high. The Dow closed just a fraction above a 20% loss. Chart of Dow

The VIX

All the major indexes once again are near the lows of the year – a major support level. There is a certainly possibility that this level will not hold. In bear markets the VIX which measures the amount of fear/volatility becomes a very accurate indicator in predicting bottoms. Three times the VIX went over 30 (showing an increase in fear) and touched 35. Each time the markets reached 35 we had a significant reversal.

Chart of VIX Scroll down for weekly chat

Reading the Tea Leaves – Any further breakdown in the major indexes will change the long term outlook to BEARS RULE. That’s the lowest possible long term outlook.

OIL RULES

Basically oil prices are going to inversely impact what stocks do. This AM oil is up about 1.5%+. Talking head on CNBC just said there are lines in China three blocks long for gas.

Recommended Sectors (Long Term)

More here on after the last day of June (today) We’ll look at last month’s results and make some projections on the future.

Bottom Line

Long Term Outlook CAUTIOUSLY BEARISH – High oil prices are holding back potential rallies. Unemployment jump of 0.5% in May – biggest in decades. (Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

The question for Wall Street is not whether there will be a recession or not, but how long will it last.

Asset Allocation/Recommended Sectors (long term)

* 40% Cash
* 35% Energy-
EWZ, (Brazil) & RSX (Russia) two energy rich countries. TRAMX – mutual fund for oil rich Mideast
PBW and GEX (alternative energy).
XLE (energy companies) OIH (oil services)
USO (oil prices) UNG (natural gas prices)
KOL (coal companies)
* 15% Commodities – MOO Agribusiness, XME (mining & minerals)
* 5% Steel – SLX (Steel)
* 5% Gold – GLD (Gold)

Chief Strategy – Buy the dips of trending sector
Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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