Friends
I felt like I was riding an elevator all day today. The market started today in a downward fashion as lingering disappointment in Fed Chairman Bernanke’s comments from yesterday seemed to weigh on the market. Then came word that the U.S. was going to release 30 million barrels of oil from our SPR (Strategic Petroleum Reserve) coordinated with the IEA (International Energy Agency) releasing 30 million barrels of oil in an attempt to drive oil prices down. Some analysts saw this as an act of desperation by governments, basically admitting that there is either not enough supply or simply that the world needs lower oil prices to stem the economic slowdown. Others simply interpret the move as trying to break the back of speculators, hoping that they would unwind their positions knowing what they are up against, therefore driving oil prices down.
First and foremost, lower oil prices translate into cheaper gas at the pump and that definitely is a good thing for the economy. So why did stocks sell off? Remember, the Hedge Fund players control the volume and as the dollar rises, they take risk off and basically just sell everything. They don’t care about great fundamentals. Don’t bother them with facts. Then at about 2:00, news came of a deal between Greece and the IMF and EU (we’ll see how legitimate it is). Stocks rallied hard and the Dow which had been down 234 points earlier in the day, came back to close down only 59 points. The S&P 500 ended the day down a little more than three points at 1283. Technically the S&P 500 traded right down to its 200 day moving average of 1262 and bounced back more than 20 points.
We will discuss in greater detail many of these events in our 3rd quarter outlook (coming soon), but suffice it to say we are a little concerned with the decision to release reserves from the SPR. Normally, only emergencies warrant a release of reserves (such as Katrina). This move seems to be an attempt to affect prices. Are governments admitting that oil prices are in an emergency type situation? The effect will most likely only be temporary and then what? When you only have a limited amount of cards to play, use them wisely.
I am going to take some motion sickness pills and get ready for tomorrow. Have a nice evening everyone.
