It’s been a fun week in financial markets – unless you are long, that is – as investors tried to make sense of the virtually non-existent data concerning the new variant of the Virus, which led to a massive surge in volatility.
Oil, which has been a great indicator of sentiment ever since the start of the pandemic (remember the negative prices?), dropped nearly 25% in three weeks, so Mr. Market thinks that the outlook is not great. In fact, according to Goldman Sachs, the market is “pricing in” a total travel shutdown of three months, which seems a bit excessive.
Making things even more interesting, the OPEC will likely chime in today as well, and with last week’s skirmish regarding the Coordinated Global Reserve Release in mind, it would come as a surprise if the nice folks at the Cartel didn’t try to intervene, at least verbally.
Technically, the WTI contract looks oversold already, and with plenty of support near the current price level, an OPEC shocker has plenty of potential to squeeze shorts. So, following yesterday’s slightly (?) panicky afternoon on Wall Street, energy markets might be ripe for a classic fast-and-furious snap-back rally.
If you are a short-term trader – well, for one, careful out there – odds seem to be in favor of buyers here, although another 4-5% drop would be ideal. Even if you are considering a, God forbid, long-term position in the sector, this could a good time to add to your holdings. That said, be prepared for moves that don’t make much sense, especially as oil will likely remain the number one COVID asset, and any new piece of info will wreak havoc in the market.
As for U.S. stocks, there still seems to be room below following last month’s exuberance, but we are definitely getting there. The question is the same as always in these circumstances:
Are we scared enough yet??
The Nature of Risk 