They did indeed buy up the S&P futures during the overnight session, holding them up for a gap open and then squeezed hard on the shorts in the afternoon. It all looks very impressive but is the real story what is going on behind the scenes? A couple of days ago, the source that first leaked Lehman Bros was in big trouble in 2008 revealed that the Fed governors are discussing allowing the big Wall Street firms to go off of mark to mark accounting rules on their energy portfolios. It has caused quite a stir on the internet as it was specifically mentioned that one firm is in deep trouble on their energy loans. It is easy to see how this is possible when you consider that one third of the approximately 600 oil and gas companies have lost ninety percent of their value in the past year and the other two thirds have lost 25 to 50 percent on average. Everyone knows the Fed cannot do another big bank bailout. Interestingly enough, the following day a mysterious buyer showed up in the oil futures and most don't think it's hard to guess just who it is. It appears that instead of doing a direct bank bailout they realized it would be easier to just drive up oil futures which would improve the oil companies balance sheets quickly and have the bonus side affect of squeezing the stock market as the reason the stock market is trading in lockstep with the price of oil is that too many people are aware that looming oil company bankruptcies could bring down one or more of the big banks. The Fed couldn't care less about the oil companies but they sure don't want financial crisis number two to begin.
Is this just a week or so squeeze on oil (& the stock market) that's coming or are they going to keep the pressure on the oil shorts until the price of oil is high enough that the big oil firms can become profitable again?
Click on image to enlarge
Trade well my friends
Alan
