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This was originally published on RealMoney. It is being republished as a bonus for readers.

Unless you have been living under a rock, you know that energy prices have been in a corrective mode and that the price at the gasoline pump has eased. Many analysts have speculated that energy has been in a speculative bubble and that this move is the end of the uptrend. Now that we have hurricane threats, oil has again begun to firm up. The million-dollar question is whether this move is sustainable.

The recent correction was caused in a drop in demand that was around 800,000 barrels per day year over year in the first half of 2008. That was the largest drop in demand in the past 26 years, according to the Energy Information Administration. However, the long-term demand situation that is being pushed by emerging markets has not changed.

For example, The International Energy Agency has recently revised higher expectations for global demand growth in 2009. And the bears' argument of a global glut of crude oil is totally unsupported by the facts of weekly inventory reported by the EIA.

Recently the EIA reported that crude oil inventories were in the lower half of the average range. That is very important: Considering the weak demand, there is no sign of a buildup in U.S. crude oil inventories.

I continue to remain very positive on the oil and commodity markets over the long term. The only thing that would change this view would be a worldwide economic collapse.

I will also pay particular attention to my technical indicators, since these types of corrections can last longer than expected. In fact, commodity markets often correct over 50% during their primary uptrend.

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You can see from the chart below that the energy complex is testing support, and the recent drop has been led by heavy volume, which certainly represents institutional selling. The key now will be to see if oil prices and energy stocks can continue to hold above this important support level. If we see a break below that in the near future, it will likely lead to more downside testing. On the other hand, a break above the downtrend line will likely spark a sharp rebound.

With the current long-term supply situation, you would think that the oil and gas equipment and service companies would be rocking. However, the sector is trading below the 50- and 200-day moving average. Before any new uptrend can get on its way, we will need to see a break above these levels. If that doesn't happen soon, especially with the hurricane threats, we may be in for more downside testing.

Looking at the chart of the majors, you can see that the price is testing the lows set back in August of 2007, January 2008 and August this year. The key here is that the sector holds these lows and then works its way above the major resistance in the 900 area. I believe the best thing would be for the stocks in this sector to consolidate some before attempting to move higher.

Finally, if the industry is about to move higher again, then you would expect the drilling and exploration sector, which has tremendous fundamentals and earnings, to be screaming higher. Unfortunately, this stock is drifting below the resistance area around $140 and the 50- and 200-day moving average.

If we don't see a change fairly quickly, the current chart pattern appears to be in an intermediate topping action that will lead to more downside action. You can also see that the institutional money stream is crawling along the bottom of the chart. You never know, and these lows may turn out to be a great buying opportunity, but I just think we need more time for these sectors to consolidate.

Finally, I want a comment on the recent discussions on inflation by many analysts along with steady input on the subject by the

Federal Reserve

. The latest figures on the CPI index show that it is rising at a rate of over 5% a year. Many have argued that inflation is close to a peak and is ready to fall.

To the average investor, inflation seems to be some type of abstract condition. However, it can quite easily be defined as higher prices in the commodity markets that can be passed along to the consumer through companies that produce products. In the past, as commodity prices have been rising, this has not had a tremendous effect on inflation.

That may be in the process of changing, since the effects of rising commodity prices are now forcing companies to pass these costs along to consumers, because commodity prices have been growing faster than the overall economy. That means another spike in oil prices would certainly push inflation much higher. Of course, on the other side of that argument, a continued break in commodity and oil prices would have the opposite effect.

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Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback;

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