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At this point there is some distortion between energy and metals which have a direct relationship as energy must be expended to mine the metals. usually the ratio is 10x the price of a barrel of oil for an ounce of gold, but now it’s been in a range of 12.5x-15x.

Either oil is very undervalued (which is unlikely) or gold is overbought at these levels.

Today’s close of the stock markets and oil seems to indicative of a risk repricing that began last week.

960 (around the 50 day moving average) on the S&P 500 and $65 a barrel on light sweet crude are my downside targets short term, but if either breaks we could trade to much lower support levels.

In addition, when examining the huge sell off in natural gas prices, it’s near certain that energy has more negative catalysts than positive because industrial utilization continues to lag despite the green shoots propaganda that we keep hearing.

Finally, there are a growing number of bears calling for a shake out of March’s lows coming this fall because of a new leg down in commercial real estate that will bleed liquidity out of the equity markets and REITs.

It looks like safe haven assets like bonds, yen and dollars are becoming more attractive vs. risky assets like commodity currencies, commodities, equities and emerging markets in general.

I think we may be entering the next leg down as Mohamed El-Erian and others have expressed the same sentiment I have. The rally is running on fumes.

We probably will retest the lows in the market and bring some fear back in to the trading. VIX is up 6%+ today and we’re seeing a lot more put buying as institutions either bet against or insure profits in stocks.

Consumer sentiment was terrible and there is now some question as to whether the FDIC is solvent after taking over Colonial Bank. All the Maes are probably completely toxic now, too. I hope foreign central banks continue their generosity or the falloff here could become a disaster.

In the downdraft of oil prices and the global recession taking full grip, a once bustling city in the United Arab Emirates is collapsing at an alarming rate. Dubai’s foreign workers are leaving in droves, their investments are drying up and new problems seem to be arising on a daily basis.

Recent incidents have highlighted the deterioration of competence.  Only a few weeks ago, raw sewage was discovered on tourist beaches.  Apparently being pumped in to the ocean by poorly run industry.  Just a few days ago a tanker collided with a freighter offshore creating a lot of debris and a necessitating more clean ups.

Above: The planned Dubai Towers project.  On hold.

I remember only a few years ago I would read that record breaking skyscrapers were being planned and even erected on a seemingly never ending basis. Now that the local economy is collapsing the government has passed a law that forbids talking badly about the city and fines those that would dare to about $250,000.

Tourism has been dropping as other destinations or staycations (staying home on vacation) become more desirable. Certainly many of the lofty projects will be put on hold if not outright abandoned as income dries up in energy and tourism. Many speculate this may be the end of a city that never really reached its planned potential.

Natural gas traders sold off the December 2007 futures today by nearly 2% on inventory data that showed a draw of 9 billion cubic feet, within the expected range, but nonetheless disappointing traders who were hoping for a larger draw. This was the first draw of this winter season, and even though natural gas is at record storage levels, we also have had the coldest start to November in four years.

As these natural gas traders hyper-focus on last week’s inventory data, many major weather forecasting institutions have predicted a cold snap hitting the East and colder air hitting the Mid-West, the nation’s largest residential natural gas consumers, this week. I believe floor traders have oversold Natural Gas on today’s inventory data. They tend to myopically focus on what was, not what is. The data we got today was backward looking and is of no use when attempting to forecast the future draw. The best indication there is the weather and I’ll tell you as a natural gas heat user, I’m keeping the furnace on because it’s COLD!

In summary, the cold snap that traders are hoping for may well be on the way.

http://www.weather.com/newscenter/fcstsummary.html?from=wxcenter_news

http://www.accuweather.com/news-story.asp?partner=google&traveler=0&article=0

http://www.cpc.noaa.gov/  (see 6-10 day and 8-14 day temp outlook).

Peter Linder, an energy analyst and senior adviser with Calgary-based DeltaOne Energy Fund, expects any price decline to be short-lived. Buyers may return if gas falls below $7.70 per million British thermal units as they examine the prospect for colder weather later this month and into early December.

Be ready for a surge in natural gas prices as speculators enter natural gas during what is shaping up to be an usually cold week in November.

Should this trend continue, natural gas may start to catch up with the momentum crude oil experienced as traders shift out of that expensive trade and in to the more fairly valued natural gas plays. For more information on natural gas, see the Moo Natural Gas Center.

UNG is poised for a rally. The three month chart suggests that the seasonal uptrend in natural gas is about to begin. UNG has broken out of its 50 day EMA and if this trend continues based on seasonal demand, storms damaging equipment and other factors, we’ll likely realize at least a 20-25% appreciation in value up from this $40 range that UNG is trading at. In addition, natural gas futures contracts are trading at a curve that suggests a generous appreciation in value. This suggests that investors believe natural gas will appreciate in value over what’s expected to be a bitter winter.