Crude Oil rises from $112 to $122 overnight. Is this a sign that the commodities bear is over?
In my opinion, NO. There are a couple of reasons which I think is in play:
1. Profit taking. Recent oil bear has been on a sharp drop over period of just a month (record high of $147 was on July 11th). So, a correction to the upside is normal and this is probably the period where the shorties (people who short oil) take profit as crude has been unable to break the $111-$112 support.
2. Reaction to the Russia-Georgia conflict is well overdue. When the news of Russia-Georgia conflict emerged, oil didn't spike up and this previous reason aggravate the correction.
3. Fundamentals for oil bear are still intact for the moment. UK re-affirms one such fundamental in its stagnant GDP reports growth for the past quarter. It is most likely to enter recession in the next quarter. With that news, USD will strengthen relatively against European currencies which causes USD-denominated commodities prices to drop. The story on worldwide demand destruction is also unchanged.
4. Warren Buffet's view on USD. He just appeared in CNBC (just at the point of writing) and said he has no bets AGAINST USD. His neutrality is a change of course over his previous bearish view on the USD and re-affirms the USD's upside potential.
Conclusion:
Shorties, stay on course.
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