Oil prices are finally beginning to bend as crude prices are showing signs of of a temporary pullback. The market has been reluctant to rally sharply because of one of two reasons. 1) It is waiting for confirmation that the oil decline is not a head fake. Or, 2) The market knows that any decline, even below $45/bbl is only temporary.
Now that the market has entered into its positive seasonal period, and short interest is high, it is important that the market attempt a meaningful rally. If not, we could be facing a very difficult market environment for the 3rd quarter.
Today, GM and Ford announced that higher oil prices were killing sales of their life blood products; trucks and SUV's. On the news, oil prices softened as traders began to take profits on a slowing economy and potential less demand.
The Fed raised the key lending rate 1/4 point to 3% today. The Fed is not as worried about the business climate as it is inflation. So, until commodity and raw material prices begin to show less inflationary signs, the fed could continue to over shoot on the upside eventually driving our economy into recession. We need to keep a close eye on the CRB Index which tracks 17 key commodities. Watching this index will actually severe as a better leading than most other indicators.
Our early move to defensive stocks has definitely paid off.
