Wall Street may have succeeded in ignoring atrocious Q1 earnings these past few weeks, but it would appear that skyrocketing oil prices are another matter. News that U.S. reserves fell unexpectedly last week pushed crude to new record highs and stocks into their worst two-day decline since February. The usual bunch of analysts seem to think it's all about supply and demand, but maybe the global energy market simply smells major weakness ahead for the dollar? If so, and the Dollar Index were to break the supposed Maginot Line of support at 70, banging out new post-World War II lows, there's no telling how high crude could go. We've identified a precise target for the July contract in Thursday's touts that's about as bullish as our technical runes will permit. Although the number is close to Goldman's recent estimate of $140, because our target is a precise Hidden Pivot, even slight progress above it would be warning of significantly higher prices to come. (Click on chart to enlarge) We doubt the already fragile global economy could survive much higher prices, but because the rally is technical rather than fundamental, $200 a barrel cannot be ruled out. We can't recall anything as big as the energy markets ever getting short-squeezed, but the 1970s oil embargo proved that it is possible for a single entity ' at the time, OPEC ' to corner the market. Odds of this occurring have probably increased since then, since no one supplier, even Saudi Arabia, can pump enough extra oil at the margin to satisfy a spike in demand, much less a wilding spree caused by global speculation. Bubble Must Pop But when the bubble final pops, and it will, it's unlikely to be bullish for stocks, since the collapse will cause hundreds of billions, it not
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