Based on Fibonacci retracement analysis, crude oil has but one barrier left before it is on track for a potential run towards its all time high near the $150 level. It has already managed two consecutive weekly closes above the critical resistance level near $103.80, which is the 61.8% retracement level from its 2008 high and its late 2008 - early 2009 low. Generally we want to see two consecutive closes above a major resistance level to confirm the breakout is valid. A strong close tomorrow in crude would be the third such consecutive close. That would set up the run towards the last barrier near the 75% retracement level at 118.79. Should crude push through this level for two consecutive weeks, it would be poised for an assault on its all time high.
The implications for the economy are obvious should this occur.
As you know, rising crude oil prices have heretofore been treated by the long bond market as deflationary and has actually worked to push bond prices higher or yields lower. It seems to me that a shift in sentiment has taken place in that market with the bonds now reacting as one would expect them to act in an inflationary environment, namely by moving lower. Keep in mind that the Fed is still in there buying bonds every week as part of their QE2 program. They picked up $22 billion this past week. If the bond market truly does begin moving lower in anticipation of a wave of inflationary pressures, the Fed is going to have its work cut out for it.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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