Oil bulls are defiant

Oil is under pressure, but both bulls and bears seem skeptical.

First, an oil bear and stock bull.

Don Hays of the respected institutional service Hays Advisory put out this powerfully incisive comment :

"It is very hard for any of us in the Strategy Business to say the word recession, but the yield curve has now been saying that was in the cards for the last few weeks. The Dow Transportation Index is certainly confirming economic weakness."

Side note: Hays is being commendably frank here. Wall Street-oriented services know their clients want to be bullish. Independent investment letters, in contrast, aren't afraid of bad news.

Hayes continued:

"So far, the industrial commodity prices have not confirmed it, but we are seeing [Friday] morning ... the price of oil is just barely penetrating its 55-week moving average at $66.90. Some very talented technicians believe a significant penetration of this moving average price would be the 'breaking point' for the price of oil and would put the downside target at the 200-week moving average which is at $47.35 today. An examination of the massive inventory glut gives similar potential."

However, Hays went on, again with welcome candor:

"The slight break is not yet sufficient to turn the full red light on. It is important to note that energy bulls would consider the pull-back to this important support area as a screaming buy. Each time it has pulled back here for the last three years it has bounced and returned to a very bullish trend of higher highs. With my bearish bias, of course you know how my odds are placed, but my bearish bias hasn't done a lot for me in the last 18 months, so please be forewarned."

Economists have been following two very articulate oil bulls, both of which have been beating the stock market recently according to the Hulbert Financial Digest: Sound Advice and Outstanding Investments.
Sound Advice usually comes across as more moderate. But its editor, Steve Horwitz, has been sounding positively vengeful:

"Talk about not being able to chew gum and walk down the street at the same time. The financial media seem incapable of keeping more than one story alive at any one time, and invariably, wherever that story line might be, the tone verges on lunatic panic. ... The excitement surrounding the drop of oil prices below $70 a barrel had the hosts on CNBC almost too giddy to bloviate. But they fail to ask whether there is any substantial reason for the drop other than the diminishing threat to the Gulf Coast from the season's first noticeable hurricane. We can't wait for them to fall into deep depression when the energy prices again rise above $70."

Horwitz concluded: "We are still betting that inflation is building, that natural resource stocks remain a good hedge against inflation, while defensive sectors such as food and [health care] as well as exposure for foreign equities are also timely, and that the slowdown in the U.S. economy does not preclude further inflation (a.k.a., as Sound Advice notes, 1970s-style "stagflation.")

Outstanding Investment's Justin Litle remains equally convinced of the "secular bull market commodities thesis" with a peak "some 5-10 years from now."

But he is advocating "getting tactical" in the face of "the likelihood, and maybe the inevitability of a drawn-out correction." That means looking at "temporary discounts", such as he currently sees in natural gas and coal, and also at SEC 13-F filings (which show the holdings of maybe money managers).