The Most Dangerous Phrase on Wall Street

“Surely, this is the bottom,” is the most dangerous phrase on Wall Street.

And when it comes to crude, this statement could even be deadly for your portfolio…

Yesterday, oil plunged a gut-wrenching 6%, reminding us once again that the only true bottom for any stock or commodity is zero. Crude has remained locked in a nasty downtrend for more than a year now. But that didn’t stop it from crashing one more time—even after losing 10% last week. As of yesterday afternoon, that meant new 12-year lows for black gold.

Markets trend. And when they’re trending lower, the path of least resistance is down. It’s that simple.

Of course, there are plenty of reasons for crude’s big dip. A glut of the stuff hanging out all over the world is the main culprit. But it’s not the only reason this commodity is stuck in the basement.

“In a Monday note by analysts including Adam Longson, head of energy commodity research, Morgan Stanley argues that traders have put too much of the blame for recent weakness in commodities, especially oil, on market fundamentals,” MarketWatch reports. “Instead, they contend that the primary driver over the last several months has been a strengthening U.S. dollar.”

The global oil glut. A strong dollar. Whatever. We can debate the reason for crude’s downfall until we’re blue in the face. But that doesn’t change the reality of the situation. Thing is, crude’s chart is a disaster. Sellers are in control. And the early December breakdown below its August lows told us that lower prices were sure to follow…

Crumbling Oil

This chart is about as clean as it gets. Check out that perfect retest at $38 before crude dropped to its recent lows. That’s a picture-perfect breakdown.

And this morning, crude is once again in the red. In case you’re keeping track at home, Bloomberg notes that oil’s daily losing streak is up to seven. That’s its longest daily streak without a gain since July 2014. Oh, and by the way—there’s an inventory report scheduled for tomorrow. That’s just one more catalyst that could potentially exacerbate oil’s most recent drop.

Does this mean we’re close to seeing a bottom in oil? It’s impossible to say. Right now, the trendy analyst target is $20 for a barrel of black gold. While that might seem crazy right now, keep in mind what we said earlier. Markets trend. Oil is no exception.

In fact, most commodities are plunging even deeper into the red in 2016. Just look at poor old Dr. Copper. Word on the street is that the doctor is about to have his PhD in economics revoked. Copper’s spot price is now holding steady below $2 for the first time since early 2009.

Take a look at this long-term view for yourself:

Copper Spot Price

I know it can be tempting to try and bottom fish in the commodities market right now. But we’re seeing very few tradable setups outside of natural gas (which we highlighted last week).

Lower for longer. That’s a theme that could easily dominate not only crude in 2016—but the entire commodity universe.


Greg Guenthner
for The Daily Reckoning

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