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Syria concerns have driven crude oil to a two-year high. But the futures market is telling traders that a correction could come soon.
As the U.S. appeared to draw closer to a military strike against Syria, oil closed Wednesday at its highest level since May 2010. But while crude oil for October delivery closed at $109.52, crude for December delivery settled at $107.32, and crude for June 2014 delivery closed at $99.47, gaining just 2 cents on the day.
As investors get increasingly worried about Syria, oil rose to a two-year high on Wednesday, trading as high as $112 per barrel in the overnight session.
Syria doesn't export any oil, and produces very little. But the nation does have close allies in Iran and Russia. Indeed, both nations have warned the U.S. not to strike Syria.
Traders worry, then, that a military strike could evolve (or devolve) into a prolonged conflict that could threaten the supply and transport of crude oil across the entire Middle East.
(Read more: Why the Syrian crisis will mean higher gas prices)
Now that the U.S. and its allies are convinced that Syria used chemical weapons on its own people, military action against Syria seems to be a foregone conclusion.
In my view, it's not a matter of "if," it's a matter of "when." U.S. officials told NBC News that military action could come as early as Thursday, and we have already seen crude rise 5 percent in anticipation of a strike.
When a strike happens, how high could we see crude trade? History tells us that once military action begins, if it looks like the action is contained to the targeted country, then oil will sell off. But it all depends on what the response to the strike is.
If we see Syria's allies in the region get involved—namely Iran and Russia—we could see crude rise as high as $115 or $120 rapidly. If the conflict turns out to be a prolonged situation, then we could see $125.
(Read more: Syria recalls Rumsfeld's law of 'unknown unknowns')
The fallout from higher crude prices is higher gasoline prices. After the Labor Day holiday, we usually see gas prices start to come off at the pump. The reason for this is simple—that is when summer driving season comes to an end, and when it does, demand falls. But this year, different factors are coming to the fore.
The market is contending with several scary scenarios that have put a serious crimp in the stock rally. The idea that the U.S. could carry out military strikes on Syria, combined with renewed pessimism about the debt ceiling debate, led the S&P 500 to drop over 1.5 percent Tuesday.
But Krishna Memani, OppenheimerFunds chief investment officer of fixed income, said such concerns are little more than red herrings. The real problem, he cautions, is slow economic growth.
Concerns about the debt ceiling came to the fore on Tuesday, when Treasury Secretary Jack Lew wrote a letter to congressional leaders saying that the U.S. will hit it in mid-October. When that happens, the government will not be able to issue more debt without authorization from Congress. And given how divisive that body has become, even another short-term authorization to keep the government functioning is not counted as a sure thing.
Lew's comments on "Squawk Box" didn't indicate that a compromise is imminent.
"We're not going to be negotiating over the debt limit," Lew said. "Congress has already authorized funding, committed us to make expenditures. … The only question is, will we pay the bills that the United States has incurred?"
(Read more: Lew: Obama not negotiating over debt limit)
Meanwhile, many Republicans have said that they would not vote for a bill avoiding a shutdown without the (unlikely) concession of defunding Obamacare. As Sen. Ted Cruz (R-Tex.) recently put it, "If you have an impasse, one side or the other has to blink. How do we win this fight? Don't blink."
Memani downplays the White House and Republican rhetoric.
"If they don't compromise, then that clearly is bad for the economy," the fund manager said. "But it don't think that's really a base-case scenario, because we have seen this movie several times before."
The picture has changed for gold. First of all, the U.S. appears to be considering military action in Syria. Second, traders are becoming more skeptical of the idea that tapering is imminent. And between Syria and the evolving thinking about the Fed, December gold futures have gotten pushed up to a 2½-month high of $1,423.
However, gold is now approaching significant technical resistance around $1,428. I believe the push higher in gold will begin to lose steam, and present the opportunity for a contrarian play. For one thing, it's hard for me to believe that the current administration will formulate an aggressive military plan. After all, the public certainly does not appear to have the appetite for it.
(Read more: Gold jumps on possible strike against Syria)
If you think the Federal Reserve is happy with the recent rise in rates, then you're wrong. The Fed has to be quite uncomfortable with the velocity of this recent move, which has seen the 10-year yield climb up from 1.6 percent to 2.9 percent in just 3½ months. Meanwhile, one of the biggest misperceptions in the market today is that equities have properly digested this massive move.
So how does the Fed allow the market to acclimate to the rate rise, and keep the 10 year-yield suppressed specifically under 3 percent, even as the marginal efficacy of quantitative easing is being questioned? Simple: They minimally reduce (a.k.a. "taper") QE in September, to the tune of $10 billion to $15 billion.
(Read more: The 3 reasons everyone is dead wrong about bonds)
Why will that work?
I am not going to sugarcoat this: The durable goods number that was released Monday morning was terrible.
We expected to see orders for U.S. durable goods drop 4 percent, but they actually declined by 7.3 percent. A number this bad begs us to ask: Can the U.S. ever pull back on QE?
The reaction in the S&P e-mini indicated a belief that it won't happen anytime soon. Once that durable goods number was released, we saw the Dow erase all its early losses, and trade higher.
(Read more: The hidden reason why the Fed will taper: Pro)
Why would that happen after such a bad number? Because market participants believe that this indicates that there will be no tapering in September, and QE will continue. And I am beginning to believe that they are right.
After all, housing looks bad, and employment is not at the target that was set. And even though there have been some positives in the economy, we are still projected to grow by only 2 percent.
Is the Fed taking a September taper off the table? That's certainly what gold bulls are hoping for.
After holding the major $1,352 level, gold finished the week with tremendous strength, trading to new swing highs. Although the metal was just short of $1,400, it closed nearly $20 higher on Friday, reaching $1,399.90. Gold then continued the run on Sunday night, trading to $1,407.
This support for gold comes as investors view the taper as less of a sure thing. After new home sales data on Friday turned out to be a big disappointment, traders and investors found gold very attractive, betting that the $85 billion a month in bond purchases by the Fed will likely continue through the end of 2013. Weekly data have been the major mover for the metal and the dollar, as the clock is ticking for the Fed to make a move on the ongoing stimulus.
(Read more: The hidden reason why the Fed will taper: Pro)
During Nasdaq's three-hour shutdown, traders who pulled up a chart of the Nasdaq composite or the Nasdaq-100 index were treated to a spooky flat line. But since futures continued to trade, investors who wanted to hedge their exposure were able to turn the Nasdaq-100 e-mini futures.
Shortly after trading halted Thursday afternoon, the Nasdaq-100 made a quick move lower, from which it recovered over the course of 20 minutes. Jeff Kilburg of KKM Financial says that was a direct response to the technical malfunction.
(Read more: Cramer: We need a disaster plan!)
"When you saw the official statement come out that the Nasdaq freeze was on, traders sold the Nasdaq e-mini down 10 handles. When there's any type of uncertainty, panic sellers do come into the market," said Kilburg, who is a CNBC "Futures Now" contributor. "But it wasn't a market crash, it was a market glitch—and there's a big difference. Once we realized that, the market came right back."
For traders, the shutdown served as one more reminder of the importance of the futures market.
(Read more: Trading automation and Nasdaq's tech glitch)
Gold is not following through to the upside, and that leaves it vulnerable.
Although the Federal Reserve's minutes provided no clear answers, many analysts argue that when you listen to recent comments, and couple those with the minutes, a September taper continues to be a likely scenario. According to the minutes, Federal Open Market Committee members broadly suggested that as long as a careful decision is made based upon improving economic conditions, a reduction in easing will definitely be on the table for the September meeting.
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