Somehow, $80 has been the black magic level that can't be crossed, the absolute danger zone where the freak-out over everything from fracking to fears of diminished growth begins. It is the line in the sand that the algorithms have drawn, and despite the fact that it's so bullish for the 34 states that have nothing to do with oil except consume it, we are petrified if it is breached.
Now, in the last few weeks I have done a ton of work about who really gets hurt with oil that declines to the mid $70s, and the answer is that the smaller independents sure do.
But I think that it is unlikely that we get to that freak-out level. The lesson has been learned that there is real demand in the $70s and that the Saudis aren't going to over-pump any more as we now know they cut back production in the month of September, when they are supposed to be trying to keep their market share by offering big discounts and flooding the world with oil.
Sure, some companies may have overpaid and really reached. I don't like what Encana (ECA) did when it paid a fortune to buy Athlon Energy (ATHL) shortly after the top. I initially liked the Southwestern (SWN) deal, when it bought some Chesapeake (CHK) properties for $5 billion. But upon a further deep dive, it became evident to me that Southwestern did NOT take advantage of the troubled balance sheet of Chesapeake and negotiate the best deal. SandRidge (SD) and Halcon (HK) will also be stretched here.
All that said, the machines override anything and while it is good to see the S&P go up in the face of this current decline, I wouldn't bet that lasts if we tick below $80 intraday.