The Oil Service HOLDRS Trust (NYSE: OIH) may be signaling some trouble for energy markets.



Chart Courtesy of StockCharts.com

The recent cold spell pushed oil prices near $85. Yet, a report on CNBC a couple of days ago makes you wonder what's going on. The network, on its Asia overnight broadcast noted that Saudi Arabia had agreed to sell oil to one Asian customer for a discount on the previously agreed price.

So, you've got to wonder who the customer was? And then, you have to wonder why the Saudis would sell the oil at a discount. The answers can't really be good for anybody, though.

No matter who the customer was, if they were asking for a discount it means that they didn't have the money, or that the Saudis are experiencing soft sales. Or maybe something else was involved, like a weapons transfer or some kind of intelligence was included as part of the deal.

The more questions you ask, though, the worse it gets. The bottom line is that oil prices have run into tough resistance as have oil stocks.

As cold weather softens, we are likely to see some demand drop. That's normal. What worries us, though, is that discount selling just doesn't make sense unless there is something else going on that will eventually become known and torpedo the markets.

Plan accordingly.

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