Wednesday, May 11, 2011

Oil and the economy

When I look at commodity prices, I think of supply and demand. If demand is expected to fall, then the futures market prices in a lower price.

Some will blame these sharp moves on the recent raising of margins on the futures contracts. My view is that the margins are raised to protect the exchanges from price volatility. And in the end, the price does reflect supply and demand. So I have to assume that the oil market is pricing in oversupply, or lack of demand. Or both...

And the bond market is pricing in deflation......

And finally, a technical look at the SPY. Will old resistance give support? I am troubled by the lack of volume on the breakout of the "cup and handle", as well as the increased volume on the recent down days. If the recent trendline fails, there will be a lot of sell orders below.

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