Wednesday, March 23, 2011

What me Worry (about oil)?

For all those who delighted in Mad Magazine growing up and are now trying to decipher the markets, this is for you. Our pal Alfred E. Newman, does not have a care in the world. And now apparently neither do oil traders.

This is a chart of OVX, a.k.a. the oil VIX and it measures volatility in the oil market. However, it is different from the stocks VIX in that extreme highs do not necessarily mean fear in the oil market and a contrarian signal to buy. Check out the labels and note when things started to move up.

What I glean from this is that high oil prices are the new normal and everyone is getting used to it. That the headlines today say that stocks rallied as oil fears abated tells me that when the next shock comes - and it will in Yemen, Syria, Jordan or (shudder) Saudi Arabia - that people will not be ready for it.


SharkAnalyst said...
This comment has been removed by the author.
SharkAnalyst said...

tell me that the USO hasn't been developing one big honkin' cup-and-handle....

(messed up the first comment post... sorry)

Michael Kahn said...

I don;t know if C/H is the conceptually correct classification but I see what you mean - and I agree.

The problem with USO is that it is not oil thanks to the rollover issue. To me, oil broke its own similar pattern last month.