Oil is Ready to Launch
Oil is making another run at the century mark, and the third time may be the charm. Supplies are still rather tight and worldwide demand is not slowing. While OPEC can talk down prices as much as they desire, there really is no control over demand. Some out there see $100 oil as a cap, but I can't see anything slowing down the price. Strong demand for gasoline will start to exert itself into the summer driving season. In 2007, the same arguments for lower oil were cited: increased supplies, high gas prices to deter driving, alternative fuels, hybrid vehicles...yet oil rose 50%! There is no denying the American insatiable appetite for oil and not just for their cars. What's next? I would be surprised if the next move for oil (next four months) stopped short at $125....unfathomable, I'm sure; but wasn't $100 oil just a pipedream three years ago? So, what works with higher oil? I like the integrateds, drillers and refiners, namely SUN, SU, RIG, NOV, OIH, VLO and TSO. Also, commodity stocks are likely to outperform, including the fertilizer names such as POT, MOS, MON, AGU and CF.

Is the VIX showing the Market's Hand?
Some very interesting action lately with volatility (or lack thereof). One thing's for certain: the increased market volatility has investors feeling might uncomfortable. Traders? Not really, it's a dream environment. Last year, the VIX was sporting a near alltime low of 11; now we see the fear index comfortably in the mid 20's, and it has been there for quite some time (50 MA of the VIX has been over 20 since Aug 16, 1007). We've seen recent attempts by the bears to rip this market up, but lately, it hasn't materialized. Why is this happening? The fear is dissipating from the markets, and coincidentally the bond market is correcting the problematic inverted yield curve. With Fed Funds well under the 10-year bond, the curve is normalized for the first time in many months; a steep curve forecasts steady economic growth and it continues to improve. So, how does this relate to the lack of fear in equities? Basically, the markets have been fearful of the Fed; that's right, FEARFUL OF THE FED without any certainty (with all due respect to the limbo) as to 'how low they will go'. It seems now, and is confirmed by at least one Fed Governor, the FMOC is closer to done with their rate cuts, concerned about stimulating the economy TOO much, igniting out of control inflation. Rate cuts are great for the markets, but ONLY if you really know they are coming; let's face it, this Fed has been as transparent as brick wall.

Market Outlook
Certainly the market has started 2008 off on the wrong foot. One thing after another seems to make the mood swings that much more violent. The credit issues have not begun to be resolved, and we could see more shoes drop and bring in more fear. We'll have to react and move with caution, but there could be good signs up ahead.

Price Headley is the founder and chief analyst of BigTrends.com.