Reality Check on some of my older Posts - Stock Market Rally, Gold and Crude Oil

When we stop and are thinking, we often miss an opportunity. That is what has happened with many of us in recent market rally.

S&P touched a high of 1100, a rise of 62% from its March lows. I did mentioned this in my article dated August 18th . This was the first leg of the bullish trend, and if someone says that because he is smart so he did not invested and that smart guy should answer me, on how can 62% rise was just a test phase. Investor or Trader if good can not miss 62% move and should be part of atleast half of the first leg of the new trend.

Crude Oil:- On June 13th I mentioned that Crude Oil is in bullish Uptrend, however just be cautious. It was trading in the range of $65-70 and recently it touched the high of $82. Now that is an enough move to confirm the point I was making. From here if Crude closes above $83, then it possess a strong chance of entering the triple digit zone in the next upmove.

Gold is a story in its own peril. Perception is that gold is being bought as an hedge against inflation. However the major reason is, emerging economies are considering parking their reserves in something other than USD and Gold to them seems a valid and tested option. Proof of it came when last week India bought 200tons of Gold from IMF. I mentioned this on July8th, that if by any chance Gold crosses $1000 level, then we can see new era of Gold prices. I currently see it taking a shot at $1300 levels. It might take months or a year, but those levels are quite evident.

Once again I would say, that " When we stop and over think, we often miss an opportunity"

In response to Linkedin Question :- Weather Economy is decided by Crude Oil or Money?

Oil is just a commodity, yes a large one but after all a commodity. It is a resource required to drive the demand of various activities in the economic growth and set up of Economies. In 2008 almost $2.7 trillion of Crude Oil was traded, big enough right. But when you compare it to World GDP it is less than 5% of almost $60 trillion (World GDP). Yes there is lot of value added at various stages and that increases the influence on Crude Oil in deciding the final GDP numbers. But certainly it is not the Economy decider.

2nd factor which can explain you about why it is not the only driver is CPI. Energy including oil are 17% of Inflation basket (in US). There are 83% other things that is part of inflation basket, so does it explains the World GDP or economies certainly not.

Gulf Countries, they are always profitable even if Oil trades at 30$, if they have excess cash, they create Soverign Wealth Funds and invest in other countries, so higher prices doesnt mean more local investments.

Now coming to money.

Money supply drives prices, no matter whatever the reason be. Price of any thing, stock, commodity, food will increase if more money is chasing it, but does that mean money drives economy certainly not, it is just the means to buy something once economy has given you enough power to buy something.

So what drives economies:-

1. People:- Countries need to be young to grow, where you have more earning population and less dependent population. In other words the earning population earns enough to take care of dependent population.

2. Economic development, which is dependent on government policies, open and investor friendly the country more wealth (in any form) will enter the economy thus making it grow.

3. Literacy. Can you name a developed world economy that is not literate, certainly not. More literate the people are, more connected they will be, more intellectual they will be and more options they will have to drive the economic activity.

4. Innovation:- Innovation does not mean only about winning Nobel Prize, it can also be doing something already being done, but in more efficient manner. Like, producing cheap, micro products etc.

To conclude: Crude is a commodity required to full fill certain tasks of economy. Money is one way of deciding the wealth the economy have and a mode of exchange, it in itself is not a wealth. Economy, is dependent on the activity that takes place within it or associated with it. Thus decided by all (All means all) the action that happens within it.

Follow the Original Discussion on on my linkedin Profile.

Crude Oil - In bullish trend but very short term correction anticipated!

Good for Oil :
1. Signs of Economic Recovery.
2. Industrial Index (with stocks of Industrial companies), is showing strength.
3. Stimulus boost in China close to $600 billion, especially infrastructure based.

Not so good signs for Oil.
1.Demand to drop by 1.5% (DOE estimates).
2. High Inventory Levels.
3. Crude stored at sea in oil tankers to take the benefit of contango, once released will add to inventories.
4. Repayment of debt by banks to US government in the tune of $88 billioon can strengthen the dollar temporarily, inverse correlation of dollar with crude (also seen recently).
5. Techincally, a profit booking required as the spread between the moving averages and crude oil is widening, mean converage is anticipated.
6. Crude oil is technically is in over bought zone (RSI : 74).

To Conclude:
Short term correction is anticipated, but bulish until it doesnt break its 50 day SMA downwards. Once it does, then stay out for sure.
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