Macro Outlook

Aw heck, everyone else is weighing in on oil, I may as well too. And my opinion is that cheap oil is over. And for one stupid reason only: temperatures are dropping like a rock here on the East Coast. 

Seriously: It hasn't been all that warm across the rest of the country. Chicago has been cranking up the furnaces for a week now, and Colorado is staring down the barrel of its third brutal storm. But that's not where they set prices, and up until today, it's been extremely warm in New York City, home of the NYMEX trading floor. 

Well, all this nonsense is about to come to a screaming halt, as temperatures plunge from the seventies to the twenties. All of it, including $50 per barrel oil.

Are retail woes starting to really show? 

Gap Inc. (GPS:NYSE), one of the major components of the Retail Service HOLDRs (RTH), is up 7.3% on the week already on rumors that it hired Goldman Sachs Group (GS:NYSE) to research “strategic alternatives.” 

A spokesman of the company stated that GPS "has a relationship with a number of top banks," but isn't going to comment on “rumors and speculation.”

As I stated yesterday, mergers and acquisitions really got a leg up in 2006 ($4 trillion total in global activity for 2006) and GPS' possible acquisition is just another drop in the bucket of the potential that M&A activity has for 2007. 

Trading Tactics

“Crude-Oil Futures Tumbling” reads the bold-print headline on CBSMarketwatch.

And it's true. This morning, oil prices traded down another $1.95 to $54.14 per barrel, making these current prices a new 19-month low.

Since the calendar switched over to 2007, oil prices have lost 11% of their value. Based on such a violent move, you'd think that the markets would be up more than 8 points, but this “push and pull” mentality has been the trading pattern early in 2007. 

I'll follow up and see where oil prices close today in tonight's Market Report. 

Material Profits

Is a complete oil breakdown coming?

A two-year monthly average price chart following NYMEX's light sweet crude price shows a distinct double bottom, a very bullish pattern. A three-month chart shows a rounded top formation - also very bullish. 

But a one-year futures chart shows a drop below support, and a dive of nearly $2.00 per barrel in today's trading. 

Which is the stronger argument? We'll analyze these charts and all the implications in Market Report tonight. 

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