Are traders getting too quick to react?
So often we hear that traders are pushing up prices on a variety of things, be it oil or food or anything else that has us so sticker shocked. Traders reacted quickly when news of Gustav’s approach of the Gulf Coastline and traders, apparently, priced in a result that could only happen from Katrina-esque circumstances.
What this means to me is that oil traders are unquestionably bullish, even in the short term and oil prices still 400% higher than a few years ago. While long term supply is dropping steadily with demand increasing, the current energy peak is made up of little but speculative investments. What this leaves me to believe is that a larger correction is due in the oil markets, traders are buying up on little news and selling off quick when things don’t pan out as expected.
When matters of substance appear in the headlines, traders take notice within seconds. Gustav’s approach and category 4 predictions put investors in a position where the only possible outcome was a shutdown for weeks. After its downgrade to a category 3, investors sold off heavily, showing that there is plenty of interest by investors to cash in on their profits and recent highs. The $120 level is showing some strong resistance, and $110 a strong support. That $110 area support has been tested recently, but I wouldn’t call a breakout just yet. If the price does make it through $100, then I’d call a full market sell off.
For the long term, oil is still probably very cheap. In the short term, I think there are plenty of better investments with less risk.
