Today crude oil hit a new yearly low once again.
Back in June I warned that commodities were in a bubble that looked ready to pop.
Sure enough, the bubbles were pricked in July and it has been down, down, down ever since for the whole commodity complex.
And on October 10th, when oil was still near 80 dollars a barrel, I said the following: "Some believe inflation will come roaring back because of the Fed action of pumping huge amounts of money into the system and commodities will go through the roof.
But without some type of true disaster that halts our normal supplies I think it will be a while before that happens as these bubbles have burst.
" "But with world economies slowing market forces are now putting downward pressure on the price of oil and most likely it will drift lower for at least the next few months with occasional rallies as is the case in all bear markets.
" Now crude oil is 44 dollars a barrel after hitting an all time high of 147 in July.
So in less than 5 months it has lost about 70% of its value.
Funny, I haven't heard anyone screaming about how it will soon be at 200 dollars a barrel lately.
With economies around the world collapsing and demand for oil drying up the price of crude is in a very powerful downtrend.
I would urge you to be very careful about trying to call a bottom and go long in oil futures at this point.
But going short at these levels can be dangerous too.
All bear markets have some sharp rallies along the way, but a trend this powerful will likely not be turned around overnight without some serious supply disruptions or other catastrophes that change the dynamics of this market.
Eventually oil prices may rise again due to a falling dollar because we printed trillions of dollars for bailouts, but in the meantime those trying to trade this market can be whipsawed out of their positions and lose a lot of money.
Bubbles are really ugly when they break and the underlying stock or commodity often goes much lower than anyone can imagine.
So just because oil is low now does not mean it cannot go lower, and most likely it will before this is over.
At the same time it is oversold to the point that short covering rallies could be huge and force even more shorts to cover their position at a loss.
The easy money on the short side has already been made; from here on in it is a big risk to trade either side of the market.
Bottom Line: Oil will probably go even lower still before this is over.
It would not surprise me to see crude oil below $30 a barrel barring some supply shock before it bottoms.
However, as we get closer to the bottom there will also likely be some extreme volatility along the way that will make it difficult for longs or shorts to make money unless they enter and exit trades at precisely the right time.
This my friend is often easier said than done.
See a couple of busted bubble charts below.
Crude Oil http://futures.
tradingcharts.
com/chart/CO/W Corn http://futures.
tradingcharts.
com/chart/CN/W
Back in June I warned that commodities were in a bubble that looked ready to pop.
Sure enough, the bubbles were pricked in July and it has been down, down, down ever since for the whole commodity complex.
And on October 10th, when oil was still near 80 dollars a barrel, I said the following: "Some believe inflation will come roaring back because of the Fed action of pumping huge amounts of money into the system and commodities will go through the roof.
But without some type of true disaster that halts our normal supplies I think it will be a while before that happens as these bubbles have burst.
" "But with world economies slowing market forces are now putting downward pressure on the price of oil and most likely it will drift lower for at least the next few months with occasional rallies as is the case in all bear markets.
" Now crude oil is 44 dollars a barrel after hitting an all time high of 147 in July.
So in less than 5 months it has lost about 70% of its value.
Funny, I haven't heard anyone screaming about how it will soon be at 200 dollars a barrel lately.
With economies around the world collapsing and demand for oil drying up the price of crude is in a very powerful downtrend.
I would urge you to be very careful about trying to call a bottom and go long in oil futures at this point.
But going short at these levels can be dangerous too.
All bear markets have some sharp rallies along the way, but a trend this powerful will likely not be turned around overnight without some serious supply disruptions or other catastrophes that change the dynamics of this market.
Eventually oil prices may rise again due to a falling dollar because we printed trillions of dollars for bailouts, but in the meantime those trying to trade this market can be whipsawed out of their positions and lose a lot of money.
Bubbles are really ugly when they break and the underlying stock or commodity often goes much lower than anyone can imagine.
So just because oil is low now does not mean it cannot go lower, and most likely it will before this is over.
At the same time it is oversold to the point that short covering rallies could be huge and force even more shorts to cover their position at a loss.
The easy money on the short side has already been made; from here on in it is a big risk to trade either side of the market.
Bottom Line: Oil will probably go even lower still before this is over.
It would not surprise me to see crude oil below $30 a barrel barring some supply shock before it bottoms.
However, as we get closer to the bottom there will also likely be some extreme volatility along the way that will make it difficult for longs or shorts to make money unless they enter and exit trades at precisely the right time.
This my friend is often easier said than done.
See a couple of busted bubble charts below.
Crude Oil http://futures.
tradingcharts.
com/chart/CO/W Corn http://futures.
tradingcharts.
com/chart/CN/W
Source...