Commodity and energy related stocks are getting pounded today.  We’ve been writing that the up move in commodities this year is reminiscent of a bubble, not-sustainable, and likely to end badly.  Today’s swift downward move is almost panicked in nature, with many stocks falling 5-10% to their recent 200 day moving averages.  Oil is hovering at around $120.

What is odd is that the groups you would think would be responding more positively to the downward move in commodities are not matching it with a similar ferocity to the upside.  Consumer discretionary and staples stocks are up, but not as much as I would have guessed would be the case.

There are rumors around the street that a hedge fund or group of hedge funds may have been caught up in a very bad trade in the natural gas sector and are being forced to liquidate their positions.  While I have no idea whether or not this is true, the performance patterns in the stocks and the absence of an upward move in non-correlated groups tends to support the notion that such rumors might have some truth to them.   

As we’ve mentioned before, it would be beneficial for the stock market if oil could pull back to its longer term trend levels of $90-100.  Like semiconductor stocks, oil stocks seem to move in only one direction.  People want to either own them at any price or they want to disown them (sell) at any price.  As an investor, I’d like to see oil pullback, but if for some reason it pulls back too aggressively, that might not be so good either.

For the stock market, an oil price that doesn’t suck the life out of consumer spending would be ideal, but not so low that folks become more concerned about the prospects for a global recession.  

The markets are never dull, that is for sure.