The Chart du Jour
This past Friday, Floyd Norris of the New York Times wrote an article entitled "For the First Time Since Ike, a Whiff of U.S. Deflation." Although we generally consider Norris only second to Gretchen Morgenson as our favorite Times financial writer, major newspapers do have a tendency to relate yesterday's story, or at best today's story, but seldom tomorrrow's.
When we look at the chart of the January contract of Unleaded Gasoline below, for example, we see Unleaded Gasoline far nearer major Fibonacci support at .5188 rather than at risk of a further freefall. .5188 will represent a 76.4% retracement on the continuous chart for January Unleaded Gas. It is also an area where the Fibonacci rhythm of the descent since last May will appear complete.
Yes, there are certainly elements of deflationary pressure already around. But there is also a U.S. money supply (MZM) that is growing by leaps and bounds. There is a hurricane potentially moving into the Gulf of Mexico. There are potential energy infrastructure threats from Muslim terrorists. There is a consumer that may not take that trip to Disney World this year, but certainly still has an inelastic demand for gasoline to get to work each day. In a recession, other things are going to get cut from family budgets far faster than filling up with a tank of gas.
For our money, Unleaded Gas futures are now closer to finishing their recent slide than accelerating lower. Norris has told us what has been, not what necessarily will be. We have sketched above our "best guess" estimate of the January contract's likely path from here.
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