Mr. Greenspan’s recent, characteristically understated warning about a softening in home prices should have been enough to set stocks tumbling on Monday; instead, they climbed. That’s what happens, apparently, when you give investors a couple of days to mull over bad news while the markets are closed. With Katrina savaging the Gulf, shutting down drilling rigs and threatening to destroy New Orleans, Wall Street had still more to worry about. And yet, investors shrugged off Katrina as well, ratcheting down crude oil futures from a 70.80 high that was made in overseas markets during the night. T-bonds, after fluttering higher, also came back down to earth, much as if nothing had occurred.  

Our rally target for October Crude was a relatively important pivot at 70.88, and although the correction from within pennies of that number implies that weakness could persist for more than just a day or two, I doubt that we’ve seen the top in oil. Then again, the $100 figure being bandied about by some energy bulls, notably Boone Pickens, might be a little too pat for a bet-the-ranch wager. However, 70.88 is the very last hidden pivot in a sequence of bullish targets that has kept us on the right side of the move, and it could take another week or so before additional pivots turn up on my radar screen.

So if oil quotes are not going to reach $100, where might this spectacular bull cycle end? A possible answer lies in an exhaustive study of asset bubbles over the last century done by asset manager GMO. On average, the study concludes, manias peaked two standard deviations above trendline growth – a calculation that leaves room for crude oil to rise a bit further, to $75-$80, before this move is exhausted. If true, then those who have recently jumped on the energy bandwagon have missed most of the rally. Even  if not, though, it certainly feels like the market is a bit too frothy for investors to be chasing oil stocks higher from these levels. As much could be said of stocks in general, since nothing – absolutely nothing -- seems to overcome their complacency for more than an hour or two.