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Yesterday, I espoused the hypothesis that based on the extremely oversold condition in crude oil prices, that the energy sector was ripe for a rally-- but only a recovery rally, not the initiation of a new upleg.

I also hypothesized that the equity markets would catch a bid despite the rally in crude oil because psychology had shifted to a more corrective or bearish view of oil- that is destined to fail in the $54-$55/bbl area prior to another potent decline into the $50-$48 next target zone.

Thus far, with crude plunging from this AM's recovery high at $54.05 to $52.50, the oil price side of my hypothesis appears to have some merit. However, the inverse relationship between oil and the e-SPM certainly has been severed... to a startling degree. In fact, the once inverse relationship now has morphed into a more direct one- that is, both markets are traveling south in tandem... which certainly has surprised me, and which magnifies the very dangerous characteristics of entering the long side of the indices.

Indeed, this is a confusing, and treacherous time for holders of long positions. If positive influences of oil, bonds, and the dollar cant help equities catch a bid, well, then something very insidious would appear to be driving the behavior of traders (investors), as well as the direction of equities.

What could be driving equities down amidst otherwise positive influences? Today's record Balance of Trade report, and in particular, the huge deficit component... usually a report that elicits a "who cares" response from investors, just may have reached such mega proportions, that the "funders" of the American consumption machine may have had enough... Foreign suppliers of U.S. capital, rather than selling their Treasury holdings, might be selling their equities as a tune-up. We can only treat this type of action as a serious amber light about what could be coming down the road if the U.S. fails to get its monetary house in order.

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