A REAL DOWNER

With the dollar posting new lows, oil put up another new high overnight. However prices have subsequently rebounded over $4.00 since then, suggesting how vulnerable the market has become to corrective selling.

The rescue buyout of Bear Stearns and the Fed cutting the discount rate over the weekend has stirred up credit crisis concerns and that seems to be cutting across all markets.

There is little question the market is overbought. The market could become even more vulnerable to selling due to the deteriorating economic conditions, as well. Last week's weak reading on retail sales and consumer sentiment keeps the outlook for oil demand soft.

With participants looking for another build, it should not be all that startling to see crude oil eventually set back a bit ahead of this week's inventory report. The precipitous decline in the dollar, which pushed to a new low over night, and energy prices in retreat may give an indication of shifting sentiment that cuts across all financial vehicles.

News that a Nigerian oil workers union is set to stage a strike starting this Wednesday may come into play later this session, but right now it is being dismissed. 

In fact, a down trending dollar, long-term supply concerns and geopolitical uncertainty may eventually drive money from speculative interests back into energy markets, but for the moment a retreat to liquidity seems to be the order of the day.

A technical pull back is over due, but recent events must be giving everyone pause that structural changes to financial markets may be underway. In an environment like that all investments will receive additional scrutiny and cash and cash equivalents will become a short term haven.                  

M. Fitzpatrick