Crude oil futures are plunging again. Stock futures are rallying. There are many reasons for the fall in the price of Crude Oil. Is Crude oil the land-line phone of the Energy sector? If so what is the wireless technology of the energy sector? Is it Solar power? Is it wind energy? If so what does that mean for Chevron and Exxon Mobile? Or perhaps I am getting way too far ahead of myself.
Just 6 months ago no one saw this drop in Crude oil. Fast forward to today when seemingly everyone thinks the current price of Crude is warranted and predictions abound for even lower prices. What do I think? There are way too many Monday Morning QB's out there. I also think the plunge in Crude is going to leave some firms scrambling to cover margin calls.
The last time Crude oil collapsed was just before the financial crisis in 2008. Crude oil collapsed and stocks followed a few months later. I'm not saying we are getting a market crash in the next month or two, there have been way too many calls for that. But I will say that I think the market isn't factoring the liquidations that are coming to cover the collapse in the Energy sector. This could take stocks a lot lower than the recent 2.5% decline.
Those expecting the low volatility of weeks past are in for some Crude and Unusual Punishment. Keep your eyes out for unusual action in big names, much like the $AAPL flash crash last week. Those will be the early signs of liquidations and further weakness for stocks.