20080807

The WIG Index covered the gap from end of Jan. Situation is interesting, but I don't think it will clarify anytime soon - it still can be either main trend reversal or continuation from main downtrend (which is more likely). Until index makes lower low (below 37k) or breaks Jan low (and then rallies to at least 45k) we should just observe - you are always on disadvantage when investing in bear market:



Looks like the WIG20 Index overreacted in comparsion to wide market. Today's close on downtrend line still gives us hope for rebounce. The US closed on red, therefore is rather little chance for positive close in WSE. Market right now is more like roller-caster and all scenarios are possible here:



A few words on oil or rather "The Oil". Everything is driven by oil. No nowadays economy can survive without it. No market analysis can be complete without oil contracts, especially with current market sentiment.
The current highest cost of extracting petroleum is ca.40 USD per barrel from bitumen in Canada; therefore we put aside Peak Oil theory and we focus just on charts. Thanks to ChartStation, very nice tool from NetDania, we can track Brent Crude Futures:



Petroleum futures are going down fast. Nevertheless, the price hasn't even touched the 38.2% Fibonacci retracement level. The next possible stop seems to be about 110 USD, with the medium-term line, 38.2% Fibo and 200-day moving average (after the Fallon Stock Picks blog).
As for now oil is just in correction and charts do not leave us much hope for cheap flights yet. I will warmly welcome any price reduction in price of petroleum as our life expenses somewhat depends on it.

Small update (14/08/2008):
Over the 2 years there was no measurable correlation between oil and equities. Thus, statistically speaking, we shall not expect rally (if anything) in stocks when the oil goes down.
Surprised? For detailed explanation take a look here or here.

Sources:
[http://ffden-2.phys.uaf.edu/102spring2002_web_projects/M.Sexton/]
[http://blog.fallondpicks.com/2006/09/market-cycles.html]
[http://blog.fallondpicks.com/2008/08/oil-set-for-200-day-ma.html]
[http://seekingalpha.com/article/90865-just-how-correlated-are-oil-and-equities]