While European leaders are still rolling over the floor about what to do with Greece, the pressure on the international markets keeps on rising. Unmercifully, the clock keeps ticking, with the moment of truth for Europe just around the corner.
We will probably know within weeks if the Greeks will be receiving another bailout, or if EU officials choose to haircut. We are still counting on the first option, as a haircut implicates the end of the European Monetary Union!
The ongoing uncertainty is starting to weigh on various markets. Stock markets, especially in Europe, are almost dropping on a daily basis, as most technical indicators are showing that we are currently in a severe correction mode, following the post-2008-crash revival of about 100 percent.
From the current levels, we could expect another downward acceleration of 10-15% for most indices.
Even commodities aren’t immune for the destructive market forces. We have already been pointing at the weakness in copper. Today, oil is taking it on the chin! Last week, the price of the energy commodity dropped by 6 percent, already losing about 20% from its previous top in April 2011. The price chart has arrived at its 200-day moving average, the long term trend.
And all of a sudden, we start reading ‘doom & gloom’ headlines on populair financial media outlets like Bloomberg. “Oil is about to go into a new bear market!” Analysts are warning the masses: if oil prices drop below their long term averages, better watch your back!
Before you decide to jump out of your window, please have a look at the chart above. The experts have been overlooking the same period last year, as oil was also cracking the 200-day-level. Following the downward break-through, a fast correction of 10 percent took place.
But this fierce price correction only lasted a few months, as in November 2010, the price of oil was simply resuming its upward trend. This was the time when the Fed officialy launched its QE2 program.
Of course, many market observers are referring to the 2008 crash of oil, when the price collapsed from $147 a barrel towards below $40! With the acceleration of the European debt problems, we can see how these professionals are having their flashback moments.
But we are not convinced, this time around, it will be 2008 all over again. Back in those days, the Fed was completely behind the curve, as they dodged a deflationary depression within just a few days. Ever since, Bernanke and his team have been vigilant, closely monitoring the stock and commodity markets, especially the price of oil!
The Fed wants to avoid a repeat of the 2008-drama at all costs. If oil tumbles another 10%, rest assured the markets will receive more dollar stimulus, as was the case last year, with the launch of QE2, injecting another $600 billion.
We expect the current price pressure for oil could persist for some weeks, even months, but we don’t count on another bear market like most analysts are all of a sudden expecting. Even if oil drops towards $80, the price would still be in its uptrend and the secular bull market would stay intact.
We, on the contrary, are going to load up on positions in the oil complex in the coming weeks, as we don’t see any bears down the road.