Oil

by Larry Levin


It seems to be the same each day: oil drops so equities rise. That's great, until it isn't. What happens when oil rebounds? Will oil find buyers near $112.00-barrel? By the looks of this rally, the opposite reaction would be a rather violent decline. Until that day comes, however, the short term direction is up.

It looks as if the future of equities are tied up tight to the price of oil and not a weaker consumer, lower earnings, bank failures, bailouts, inflation or deflation. Keep an eye on $112 and $110-barrel of the black goo; if it rally's from one of these prices, I'd expect equities to give some of this rally back. But the forces of supply and demand would know better than I do. The market has a tendency to over-react in both directions. It probably over-reacted to growing worldwide demand, and may be over-reacting to the worldwide economic slowdown.

Does the decline in the oil market waive the magic wand of financial stability over the banks and investment banks? Will lower oil prices unlock the credit markets? In a word: No. A report from the Federal Reserve today reminded investors that the nation's credit situation is still deeply troubled. The central bank said about 75% of the banks it surveyed in July had increased requirements for prime mortgages, up from about 60% in April. The tighter standards can make it more expensive and difficult for borrowing that could stimulate the economy, which is exactly what I said in my latest missive.

David Wyss, chief economist for Standard & Poor's in New York , said the tighter lending standards reflect the huge loan losses that banks have already suffered. The country is probably going through the most severe credit crunch since 1991-92. I think bank credit is going to remain tight for a while.

Other than that, it was a slow news day. Oh yeah, the Russian/Georgian war may be spreading to other countries. As of now, nobody seems to care.

Real Time Trading Signals*for

Trade Date: 8/11/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 9:15am at 1298.00 = b/e (1 lot)

2) OTF sell @ 2:00pm at 1305.75 = +1.50 & +7.50

3) Algorithm trades (3)...combined total...+9.00


ZB (30 Year Bond) Trades*
(before fees and commissions):

1) Sell @ 10:56am at 115.180 = +8.0 (1 lot)

2) Sell @ 12:32pm at 115.050 = b/e & -2.5...combined total...+5.5


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