Deflation Gripping Oil - Market Analysis for Jun 1st, 2012

Let's take a BIG picture look at NYMEX Oil, which has undergone a huge decline, but which the equity markets continue to ignore. Why? I can only surmise that the grip of deflation is firmly implanted on the jugular of the equity markets.

NYMEX oil has declined nearly 30% in the past 90 days (which is incredible when you think about it), but more importantly from a technical perspective the decline from $110.55 to $82.56 could represent the "right side" of a significant 2-year double-top pattern that is bearing down on its key support plateau between $78.80 and $75.00. This area must contain further weakness to avert a potentially acute breakdown towards $50-$40.

If we believe that conditions are emerging that indicate the advent of a global recession, and demand for oil continues to suffer amidst otherwise powerful deflationary forces already at work despite extraordinarily cheap money . . . then can we rule out an acute plunge in oil and the U.S. Oil Fund ETF (USO) prices from here?

Based on prior recent history -- i.e., the plunge from $147.27 in July 2008 to $33.20 in January 2009 -- apparently not!