My travels are still taking me north to Washington State this morning, but at least I am driving at leisurely pace. I do have two problems though. First, my air conditioner conked out in Redding California, oh, with the temperature right around 105 degrees. Second, the price of gas is on the rise.
- In early trading Friday WTI crude oil tacked on another dollar, topping $109 a barrel, and racing to break $110 for the first time in multiple years. A close here would mark the second straight week of multiple percentage point gains.
Clearly, I can see it at the pumps, which means over $4 per gallon everywhere in California. So, I ask myself what is going on, since the fundamentals suggest oil should be closer to $90 than $110.
- The fundamentals are in the bears’ corner. Demand is weakening, global headwinds are picking up, and the dollar is relatively stable regardless of Bernanke’s apparent best efforts to weaken it. The price could move as high as $110, but any stability in Egypt could send it right back to the $90s in a hurry.
Again, I ask myself, what is going on? If the above is true, why is the price of oil jumping up?
- Traders are frightened not just because many of them missed the move but they’ve been shorting crude during the rally. As WTI rallies those same traders are taking off the short position by purchasing upside calls or get long in other ways, all of which adds fuel to the rally.
Okay, so the issue is speculators, traders, investors, and anyone else who is getting on the bandwagon as prices rise. Or is it?
- Even a drop in crude oil prices might not be enough to save motorists from price increases at the pump. Gas prices are suddenly on the rise, but in this case, it’s not entirely the fault of “evil speculators” or Big Oil. The problem instead stems from Washington DC’s devotion to the failed alternative fuel that is Ethanol.
The above idea is a more detailed discussion for the future, but, for now, understand that rising gas prices are a serious threat to consumer stability and, thus, the market’s momentum in the third and fourth quarter. Something else I am watching as well is the earnings of Microsoft, one of the bellwether stocks for the technology sector.
- There are many ways to characterize Microsoft’s (MSFT) latest earnings report. They’re being called everything from decent to disappointing — to an outright call to man the lifeboats. Officially, the company’s 16 cent per share shortfall — $0.59 versus $0.75 consensus estimate — is its biggest bottom-line miss in 38 quarters, Factset data shows, going all the way back to January 2004.
I don’t know what happened this past quarter with MS, but that ship is listing a bit. Something to keep an eye on, as a portion of my money is, and has been, moving through the sector.
Trade in the day; Invest in your life …
