Tuesday, October 14, 2008

Flip-Flop, Hooray?

So in yet another amazing flip flop Goldman Sachs has revised its oil outlook from a $115 target by years end to just $70, with a possibility of $50. This is thrown in there after oil has of course already come alll the way down to $77 as of last friday (bounced up to 81 Monday) from the all time high of $147 in early July. Yes, you heard it right, Goldman has predicted the price to be $70 by year end. Going out on the limb there dont you think there guys?

Ok I'll give them credit for calling the run up to $150 last spring but this latest call is just another example of why listening to analysts will never make you any money. Oil has lost 48% since the peak was hit just 3 months ago, pretty much a slaughtering. And NOW these professionals come out and say they think its going to $70. ARE YOU KIDDING?! What a joke.

It was clear the trend in oil (and commodities for that matter) was over when crude broke thru $120 and even before that you could see that the BRIC story was a scam that was pushed a bit too far. That demand from emerging markets was already slipping before crude had its meteoric rise. The Baltic Dry Ship Index (the index that tracks the cost for shipping rates that big bulk shipping carriers to transport dry goods) had started to crash from the peak in late June and clearly pointed to a slowdown in the global economy before any fundamentals showed their heads. Anything that is used to feed global economic growth was dropping in price. And quite rapidly infact. And so where was Goldman?

Oh they were waiting to tell their clients about the revision to their forecasts of oil till it lost nearly half its value. This is a great reason why every individual investor should be able to do their own due diligence or not play at all. Read a book. Educate yourself. You can do the analysis yourself and let the analysts make their bad calls as they use their complex financial models to no avail.

Ok, enough of that. So what do I think of crude right here? Well, when it was over $130 I was saying there is a very real possibility it can come down to $87 by Dec. It blew right thru that and hit $77 last Friday. Looking at the chart I see a broken commodity which means the downtrend is in full effect. I wouldnt be surprised to see a bounce in oil here around the 75-80 level because you have the 200 week moving avg. just below. However, I wouldnt count on it getting back over $90 right away. It has plenty of support down here around the 75 level so I would assume it trades sideways for a little while but eventually may head into the 60s if it cannot hold the 75-77 level.
Bottom line is that you soon will be seeing gasoline at a local pump near you around $2.50 or less. Never thought I'd be happy about that a few years back, but hey lets smile. :)


MarketAddiction said...

The analysts are always behind. Sadly, Goldman is regarded as one of the best around, and they aren't even worth listening to. This also makes me think of Cramer and how he comes out after the market drops 6000 points from its highs last year and finally decides to tell people to sell stocks. A little behind I think after after people already lost 40% of their retirement/savings. In a few years people will feel like idiots after our economy has recovered and they realize they sold at a horrible time.

Jason said...

Yeah its a sad cycle that keeps repeating it self decade after decade.

GS751 said...

How many analyst's came and downgraded BSC after it dropped to less than $10 lmao.....Morningstar had a Strong buy Rating on AIG when it was $27..Steven Kim, the builder analyst had some ridiculous stuff until he got fired because he was constantly wrong. Paulson and Bernanke remind me analysts.

Adam said...

already seeing $2.80 or so here. Then again we have the cheapest gas (possibly connected to having refineries every block).

Jason said...

gs751: Yeah analysts were made to fade, lol

Adam: Wow thats def cheapo. We are still at $3.10 here in Wash. St. Yeah, I get my NJ gas pump quotes from Mark Haines about 4 times a week, lol