After a statement that confused many market participants, a heavy docket of Fed speeches in the week ahead could provide some clarity. Or not.» Read More
It's a crude reality for the market: Oil will put an end to the rally. At least, that's what some market participants contend.
"The increase in the WTI oil price is creating too strong a headwind for growth and further equity gains," Encima Global President David Malpass wrote on Wednesday. "We think there will be a pause or retracement in equities until growth prospects improve or oil falls."
Over the course of three weeks, oil has rallied 12 percent to the highest level since March 2012, and Malpass believes that rising oil prices could pose a problem both for consumers and for businesses.
"It's an important cost of doing business, and may undercut profits and business confidence. From the standpoint of the consumer, it acts as a tax increase, reducing the income that could be spent elsewhere," he said.
One of the reasons Malpass is so concerned about the oil rally is the reason behind it.
"Expensive oil brings new negatives," Malpass said, and "this is particularly true when the increase in oil prices is caused more by supply concerns than an increase in demand."
(Read more: Here's when high oil prices could really pinch)
Gasoline is showing quite a bit of strength, in the wake of the bearish supply numbers that we've seen recently.
The API numbers showed a build of 2.6 million barrels, and the EIA number that was released on Wednesday morning showed an even bigger build of 3.1 million barrels. So if we are showing a build in supply, why the strength?
There are a few factors—and while each is small, when put together, they spell out near-term supply problems for gasoline.
Refiners have had a few snags in getting supply out, with maintenance issues, unplanned shutdowns and problems with pipelines being the most visible. That is coupled with an increase in demand, which is because of the driving season and a slowly improving economy. Put this together, and the supply and demand picture is giving us a recipe for higher prices.
(Read more: Gasoline at the pump still rising but peak in sight)
The good news is that in a few weeks, the market will realize that we will have enough supply to meet demand, just as the summer driving season is winding down. This will cool off the market, but the wild card after that will be hurricane season.
It's a big day for Big Ben, and gold should respond accordingly.
Look for gold to fish for stops above last week's $1,297 high, as it tests $1,300 upon the release of the text of Chairman Bernanke's prepared remarks to the House Financial Services Committee. These remarks helped bond prices and equities rally, in addition to gold.
Investors are eager to see gold back above $1,300, after Bernanke said just last week that a highly accommodative monetary policy will remain in place for the foreseeable future. One has to question, though, what this really means.
As Bernanke appears before the House Wednesday to present the Federal Reserve's semiannual monetary policy report, the main topic of discussion will be the Fed's potential exit of the $85 billion monthly bond-purchasing program. The other big topic on the table will be the benchmark interest rate.
Doug Kass has long been bearish on the market—and that has long been the exact wrong call. But now, Kass says the market's moment of truth is finally upon us.
"I've certainly been wrong," Kass admitted. "But being wrong doesn't keep me from warning investors."
And warn investors he did, for Kass sees this as a particularly treacherous time. "I think when the searchlights of the investor are the dimmest, when the economic and market threats are the greatest, and when market participants are the most comfortable in their inattentiveness and ignorance, the risks are surging—and that's precisely where we are now."
So what exactly is making Kass so concerned about the market right now? The president of Seabreeze Partners Management laid out his reasons on Tuesday's "Futures Now."
1. Stagnating GDP will weigh on revenue
Kass noted that "projections for second-quarter GDP—real GDP—are now under 1 percent." Indeed, Barclays cut its Q2 GDP growth forecast to 0.5 percent on Monday, and Goldman Sachs reduced its estimate from 1.3 percent to 1 percent.
Kass believes this stagnant rate of growth will be a major constraint on corporate revenue. "You've got to see a sharp acceleration in the second half for companies to have any top-line growth whatsoever," Kass said.
2. UPS lowers expectations
On Friday, UPS gave Kass one reason why this "sharp acceleration" is unlikely to come to pass. "I can't see it," Kass said, "with UPS cautioning about domestic economic growth."
UPS shares dropped by 6 percent on Friday after the company reduced earnings guidance. And one of the reasons the global shipping company gave for cutting guidance was "a slowing U.S. industrial economy." This is in line with Kass' thinking about what the rest of the year will bring.
(Read more: Cramer: Has UPS called recovery into question?)
3. Coca-Cola's weak shipments
On Tuesday, Coca-Cola gave Kass another reason to be bearish. In an earnings report that CEO Muhtar Kent said he is "not happy" with, Coca-Cola reported that soda volume in North America fell 4 percent.
That said, Kent pointed to factors that were more meteorological than economic: "We experience an extremely wet and cold second quarter," he said on Tuesday's earnings call, and "this weather clearly impacted our industry's volume growth."
(Read more: Coca-Cola's earnings meet, but CEO's 'not happy')
Do the fundamentals matter for crude oil?
When you look at the crude oil markets Monday and compare them with the picture from just a few weeks ago, you will realize that fundamentals have taken a back seat to technicals. Sure, there has been a slight uptick in demand, geopolitical tensions have risen and the dollar has come off of its recent highs.
But does this justify a $10 move to the upside? I think not. The market is very well supplied, and while demand is stronger, it is still nowhere near where it was just a few years ago.
(Read more: Expect $50 oil, but not $2 gas, Gulf Oil CEO says)
So with that, let's take a look at the technical picture.
Oil has enjoyed a stellar run over the past three weeks. But if you buy now, you better exercise a great deal of caution.
Crude oil showed signs of continuing its surge into the close on Friday, recovering more than $1.50 from its lows to close at $106. However, the market was falling back once again Monday morning, after China reported its second-quarter GDP growth came in at a somewhat discouraging 7.5 percent. A solid retail sales number out of China—up 13.3 percent from the previous year—is tempering that bad news.
(Read More: China's economy slows for second straight quarter)
The dollar has been having a positive morning, and we are looking to see the Dollar Index cover the gap at 83.75. The major level to watch at the close will be 84, as a move up to here will put pressure on commodity prices.
Crude oil is once again showing strength. So what's behind this sudden demand for the black gold?
First of all, we have seen some positive economic numbers come out of Washington. Second, seasonal factors are keeping many oil products in high demand, especially gasoline. If fact, gas demand has increased to more than 9 million barrels a day, a number that we have not seen since last summer.
With fracking becoming increasingly widespread, we are seeing less in the way of imports, and demand for West Texas Intermediate crude oil has increased. We have seen two straight weeks of 10 million barrel draws, something I have rarely seen as a trader on this floor.
To a lesser extent, continuing tensions in the Middle East are helping to elevate the oil prices. And as we were reminded by Tropical Storm Chantal this week, we are in hurricane season, and that has to be on everyone's radar.
(Read More: Two Big Reasons Gas Could Spike)
After putting in a $35 range shortly after midnight, gold stayed quiet through the Thursday's day session. The market tested a low of $1,276.10, just below support, but was unable to follow through before closing at $1,280.
Late in the day on Thursday, the Dollar Index gave up some of its gains, which has allowed it to show green on Friday's session by recovering those late losses. We are seeing slight pressure on commodities priced in dollars, and gold has moved back through support—trading close to $1,275 with a low of $1,272.60 so far.
(Read More: The Secret Sign That Gold Has Bottomed)
Silver has suffered a gut-wrenching year, losing a third of its value. But the CFO of one of the biggest silver miners says possible production cuts could soon provide a floor for the battered precious metal.
According to Pan American Silver's most recent quarterly report, the company experienced a total cost of $17.29 per ounce of silver mined in the first quarter of 2013. With the silver price recently dipping down to $18.18 per ounce at the end of June before recovering, the company's margin on production is starting to look awfully thin. That, in turn, could have an impact on the company's operations.
"The recent drop that we've seen in precious metal prices has definitely been challenging the industry, and in our case we have a portfolio of mines, and some are lower cost and some our higher cost. And when we look across the industry, for sure, we see that the current price is challenging those higher-cost operations," Pan American Silver CFO Rob Doyle told "Futures Now" on Thursday.
"We are seeing some supply-side response to the recent drop in precious metal prices," Doyle said. "So I think fundamentally, at some point, there will be a floor that comes into play."
In other words, a lower silver price could cause miners like Pan American Silver to shut down some of their most expensive mines. This, in turn, could provide a floor for the silver price, because supply would eventually be reduced.
But what has caused the incredible silver sell-off? Doyle blames technical factors and lemming-like selling.
"The market is certainly dominated by some large technical players, and I certainly believe that the precipitous drop we saw in precious metals have somewhat fed on itself," he said. "As the market moved lower, the moves were so vicious that it fed on itself and created more selling."
(Watch full segment: Where Silver's Going: Silver CFO)
Not all energy futures are rocketing higher along with crude.
After an eight-day consolidation pattern, August natural gas futures have broken down and appear headed for another leg lower.
The fundamental story backs up the downward move. The Energy Information Administration reported a sixth consecutive week of above-average natural gas inventories, which is obviously bearish for the commodity. U.S. output has risen for six years straight, in what seems to be an enduring trend.
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