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Early Evening Market Review for Monday
Oil prices dropped on Monday as traders reacted to an embarassment of riches. Because the economic news has been so good recently – so good that it has eclipsed the market’s recent, poor fundamentals – investors decided to take profits on Monday, out of fear that the Federal Reserve might indicate it is nearer to raising interest rates, soon. Most economists tend to feel that any interest rate hike would be awfully premature, but investors were discounting the probability/possibility on Monday and their conclusion was that the odds had increased on the Fed ramping up its hawkish language, even if no one really expects rates to be increased here and now. Page | 1 Research: 203.801.0771 Sales: 203.504.2786 Powered by FMX | Connect

We have mentioned that this is the most peculiar seasonal advance we have seen, in over three decades of watching oil prices on the Nymex (heating oil started trading in 1978, although we were not aware of the seasonal tendency until six years later). Usually, we get some solid fundamental factors interwoven with less traditional factors to knit together a bullish tapestry. This year, we have had all of one week of fundamental support with the rest of the buying coming from the vague, good feeling that has been the constant companion of higher equities prices these last 14 months. Now that dyed-in-the-wool traditionalists like ourselves (traditional here means fundamental, technical and seasonal) have accepted (with resignation) the overwhelming psychological trend towards higher prces, based on economic news and higher equities, investors were thinking on Monday that they might have wrapped their arms around too good a market. The DJIA ended Monday’s session with a gain of 0.75, which might as well be unchanged, and feels like a decline in the light of recent activity. The Federal Reserve Open Market Committee (FOMC) meets Tuesday, and investors were booking profits on the potentiality that its minutes (released later) will eventually have a word or two changed, suggesting that the easy money policy, that has spawned the aggressive carry trade, might ultimately be reined in. Everyone knows it is just a matter of time; the economists we listen to believe that it will be a while before we actually get there. Capital Economics (CE), which we respect, has been talking about “the disinflationary pressures stemming from the spare capacity accumulated during the recession,” which CE says “are still mounting.” It does not believe that the Fed is anywhere near raising interest rates, yet. Monday’s activity leaves this market in an interesting place. It has been rising on the signs of economic improvement, but those became cautionary signals yesterday. Fundamentals should have a day or two in court as the API and DOE reports are released, but data like consumer sentiment can outpoint bearish reports. Only bullish fundamental reports seem to get their full measure of respect. It means that we need to be able to understand the primary signals – and then discount any contrary points simulataneously. At this stage, we will just stick with the seasonal. Crude Oil Daily Technical Chart

**Note: Full version to be released tomorrow morning** Page | 2 Research: 203.801.0771 Sales: 203.504.2786 Powered by FMX | Connect