Groundhog day

So another day, another rally in asian equities, followed by european equities, then oil, then gold. While SFOT is not any expert in the equity market, he has some industry contacts ranging from short term momentum punters to old fashion value based investors. He has seen these value based investors raking it in, happy to argue that stocks are cheap on valuation and buying anywhere 3-4 weeks ago make sense. These happens to be the guys who has no interest in short term flows and they are sitting pretty in the YTD p/l. Pat on their shoulders for now, as these are the guys who have inflicted the initial pain on those who have only recently thrown in the towel. Beware, the latter, as stopping in always leaves a very nasty results.

For a while now, SFOT has heard bulls talking about base has formed in WTI and we will not see 30 handle again. While that is possibly true, is 30 handle analagous to 600 handle on SPX and 700 handle on Gold? Is oil now simply a function of financial markets and the good old fundamentally driven price actions we have seen over the past few months are all but gone? The financial markets, mr and mrs smith buying notes issued by xyz banks on oil/commodities, jacksons on the street using etfs are running the show again as in the case of 2008? At this moment, it seems the case. SFOT cannot bring himself to buy the market here. What he will look at is to be short of the back end, either vs prompter stuff or outright, reason being Z10 at $70 must make producers drool again.

One fundamental trade that make sense is to continue to run a short position in distillate cracks. After DOE data yesterday, distillate data continues to show itself as the weakest link. Within Europe, Gasoline is now more attractive to produce than Diesel from a refiner point of view, for the first time since 2007 and going into the peak of driving season and hurricanes, SFOT will continue to hold this position.