Take a look at the following chart and you will see what I mean. This resurgence, ( completely avoidable) has sent crude oil prices soaring and that means that the products are following right behind.
I have noted an area of resistance on the chart near $3.10 - $3.11, which if bettered, will send gasoline to a test of last July's high just above $3.15.
Here is the issue before us - rising energy prices often confuse traders because many have come to regard them as evidence of inflationary pressures. The problem in this economy is that it is so weak, so fragile, that rising energy prices will act in the exact opposite fashion - they will serve to depress growth and drive the price of key commodities lower.
Here is an updated chart of our pal, "Dr. Copper".
Can you see what it is saying? I have made some notations on the chart detailing the fundamental news that has been the driver of each move lower recently.
Today's Iraq news was interpreted as bearish for global growth because of the surge in energy prices and the "tax effect" it will have on growth in general.
The move lower in copper was affirmed by the sharp drop in interest rates as the yield on the Ten Year fell below 2.6% after it had been managing a slow but steady climb out of the ceiling near the 2.40% level late last month.
Stocks in general also responded to the Iraq developments by selling off. All three indices that I follow, the Dow, the S&P 500 and the Russell 2000 were down around .6%.
The HUI was one of the exceptions as the gold sector had a nice day.
The index broke above the resistance level near 218-220 and has now extended into the former range trade that was marked by a top near 228-230 and the bottom near 218-220. Let's see if this index can push up to the top of that former range and possibly breach it or if it stalls out and retreats lower. Near term momentum is now with the bulls and as long as the ISIS is on the move and succeeding, gold and these shares should find some decent buying support.
I want to continue to keep a close eye on the Copper market. If that thing breaks down, it could spell some real trouble coming our way. Higher energy prices could very well squash any nascent recovery dead in its tracks.
By the way, this is just one reason in my mind that should convince American citizens that it remains imperative we fully develop our own bounteous supply of domestic energy sources. That includes building that Keystone pipeline to bring Canadian crude ( our stable friend and neighbor to the North) down to our refineries along the Gulf Coast. Frankly I am weary of having the price of gasoline held hostage by events that transpire in that most volatile and backwards regions on the planet ( the Middle East). Far too many who live there are caught in some sort of time warp and seem to revel living in 8th century AD conditions and thinking. One has to pity some of the younger folk there in particular who have seen the freedoms that the West currently enjoys and might not ever live long enough to experience them. What a tragic waste of human potential.
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