Mystery Trader

Crude oil prices fell more than 1% to $69 on news that supplies of crude oil, gasoline, and distillate all rose in the latest week, contrary to expectations for a decline.

Also, a slightly smaller than expected upward revision to second-quarter U.S. economic growth as measured by GDP (gross domestic product) reinforced hopes that the Federal Reserve may have ended its interest rate raising cycle.

Stock prices turned higher on this news, but I doubt that the gains can be sustained.

Unless a surprising employment report gives the market some direction on Friday morning, choppy, directionless market behavior may continue. Many traders are on vacation this week, and so a truer reading of the market intentions may be postponed until next week.

I still see potential downside risks outweighing potential upside rewards.

Oil is down on news that the latest tropical storm will miss the Gulf of Mexico energy installations.

Stocks and bonds are having a relief rally.

This is not the last of the storms, however, and there are plenty of other potential problems to put a lid on the markets.

I am neutral at the moment and waiting for the right time to place aggressive bearish bets.

Today at 10 a.m. EDT, the markets may react to any hints given by Fed Chairman Ben Bernanke when he speaks about global economic integration at the Federal Reserve annual symposium in Jackson Hole. Ben has some history of saying odd things, and he could be capable of saying anything today.

Crude oil is up more than $1 on signs of a tropical depression gaining strength near Puerto Rico. This is potentially bearish for the stock market.

Downside risks seem to far outweigh any imaginable upside rewards, so I am selling short.

“Time is working against those who would like to see this resolution applied…We are now in the most sensitive and explosive position.” — Tzipi Livni, Israel’s foreign minister.

A British think tank declares Iran the big winner in Bush’s “war on terror”.

Iran brags that it is a “nuclear country.”

American Pulitzer Prize winning investigative journalist, Seymour Hersh “wildly speculates” that the Bush Administration plans an air strike within Iran, possibly including a nuclear first strike to eliminate underground Iranian uranium enrichment facilities.

Existing-home sales plunge to a two-year low. The housing industry is obviously in trouble, and its decline will ripple through the whole economy.

Inflation is higher than the Fed is comfortable with, and so the Fed may raise interest rates again.

How long can stock prices defy the laws of gravity?

The big risks all seem to be skewed to the downside. The only problem I see is that this is all too obvious. So, I want to be prepared for surprises. Like the path behind, the road ahead may be full of twists, turns, and major potholes.

This “news” from Chicago Federal Reserve President Michael Moskow seems to be spooking traders.

Naturally, since history clearly shows that rising interest rates are bearish for stocks and bonds.

The pre-opening call is for lower prices for stocks and higher prices for oil, gold, and commodities.

The news seems to suggest that the Middle East might not be a safe place.

Last week’s correction (upside for stocks and downside for oil, gold, and commodities) may be over.

8/18/06
Correction
All the financial markets turned corrective this past week.
Prices of financial instruments of all kinds have been moving opposite to their major trends over most of the past week.
Counter-trend corrections opposite to and against major trends are not reliable. The extent and duration of such moves are usually limited, although frequently quite unpredictable.
Nevertheless, I would guess that these corrections are over.

The opening call is a bit lower for stocks.
Sure, running with the Bulls can be fun–while it lasts.
Just don’t stumble and fall under hooves.
There are still plenty of potential risks, and so this rally may not be on the most solid foundation.
I am trying for a very flexible trading attitude, trying to be ready to roll with whatever comes my way.
The market seems more reactive than goal oriented at this time.
A return to two-way, trading-range action would not come as much of a surprise.

I underestimated the impact of the smaller than expected PPI and had to cut short sale losses repeatedly in the persistent rally on Tuesday. Ouch!

On Wednesday before the open, the July CPI consensus is +0.4%, up from +0.2% in June. Core CPI consensus is +0.3%, unchanged from +0.3% in June.

If CPI is lower than consensus, the rally might have legs. But if the CPI is higher than consensus, still another big reversal, this time to the downside.

too many actual and potential worries at this time…

why take the risk of holding longs?

Shorts look like the better bet.