Crude Oil Canary

Crude oil does not lie.  It is telling a story of a sharp drop in industrial demand.  If you are just looking at the change in demand, the drop coming from Europe and China are alarming.  Brent crude oil is trading just above $90, and WTI is now below $80.  This is 2010 territory.  Back then, the S&P traded in a range of 1010 to 1255.  The slowdown in China is being underestimated amidst the onslaught of European headlines.  But China is trading worse than Europe.  Europe is mostly priced in, but China is not.  There is still hot money in China, and China will not bottom until that hot money leaves.  Still several months away.

Overnight we got the surprise move from the EU summit, agreeing to directly recapitalize banks, which is just semantics, because you either give it to the governments to give to the banks, or just give it to the banks.  In the end, the banks get the capital, which is what matters.  So this is nothing.  The continuing of the bond buying of Italy and Spain is somewhat significant, but just a continuation of what the ECB has been doing, just onto a difference balance sheet. 

I see a sell the news reaction for the first half of the day, but I don't see much downside, perhaps down to 1325-1327.   Next week, we can continue rallying off this into the nonfarm payrolls next Friday, but beyond that, is asking for a lot from a weak market.  Still waiting for the 1350-1360 zone to short, should get there next week.