With a massive barrage of developments in the crude oil market taking place in the last few days, the analysis of the US Dollar Index will be deferred to a future post. Crude oil has been in the news for over a month, indicating that a blow-off top is in progress.
Looking at the larger picture, crude oil is in the midst of a Primary degree bear market rally. Here's the chart of crude oil from 2008 - 2011:
What we are seeing now is a repeat of 2008 when crude hit a high of $147 a barrel. As crude oil approached the final stages of a Grand Supercycle degree peak, the fear of "Peak Oil" was pervasive in media and politics and there were calls in Congress (particularly Nancy Pelosi, who was Speaker of the House at that time) for investigation into excessive speculation and fraud.
We are seeing it unfold again, just like 2008. Yesterday, President Obama placed the blame for rising oil and gas prices on speculators and called for an investigation headed by the Justice Department to look for fraud and manipulation. There is more information about the development here and here.
The calls for government intervention in rising oil and gas prices is not just happening at the federal level. Just today, Sen. Maria Cantwell and Sen. Patty Murray also called for increased regulation on oil speculation. There is more information about the development here.
Why would the Obama Administration call for government intervention on oil speculation now? The clue is the nature of blow-off tops in commodities. While blow-off tops in the stock market are fueled by hope, blow-off tops in commodity markets are fueled by fear. Fear is a stronger emotion than hope, which is the reason why we see parabolic tops in commodities but not in stocks. There is definitely a lot of fear in the air with economists and market analysts talking about the effect of social unrest in the Middle East on oil futures, and some contemplating what would happen if Saudi Arabia were to be affected by the same type of social unrest that has taken place in Tunisia, Egypt, Bahrain, Yemen, and Libya.
Here is the 6 month chart of crude oil:
As the chart indicates, a blow-off top is in progress. Crude oil is clearly tracing out an ending diagonal, which started with a massive thrust from a Minor degree triangle in late February. The initial thrust propelled crude oil past the 61.8% fibonacci retrace benchmark ($104 a barrel). The upside target for the ending diagonal is indicated by the blue box on the chart, which is $115 to $122 a barrel sometime in May 2011.
Crude oil is approaching a Primary degree peak, and the peak should be followed by a resumption of the larger downtrend. It's more than a coincidence that crude oil is approaching a critical juncture at the same time that the stock market is. Gas prices at the pump should keep rising into June 2011, retesting the 2008 high and hitting $4 a gallon in many areas of the United States.