In our last Big Picture post on Oct 26, we focused on two key drivers of equity values.
The problem, as noted in Welcome to Peak Oil, is inflation…. CL peaked [October 9, 2015] at 50.92 and plunged to 26.05 over the next four months. If it doesn’t do the same thing now, we’ll get year-over-year inflation. Since this past Feb, CL has been the primary factor in stocks moving higher. If it can’t maintain that role, then TPTB will need to find another algo engine — or stocks will fall.The yen carry trade worked from 2011 – 2015, but can it be resurrected? USDJPY has certainly changed its tune since CL’s top first became a problem. Note that it broke out of a very well-formed falling channel dating back to Oct 2015 at the very moment that CL was testing its yellow neckline.
Oil has now fallen 18% since our Oct 10 top call [see: Welcome to Peak Oil], and USDJPY, has risen a spectacular 6.9% since last Tuesday night’s election lows. That’s all well and good. But, the big surprise in preparing this post was that the analog [what’s this?] I first advanced 3 1/2 months ago [see: A New Analog: Aug 3, 2016] continues to play out relatively well.
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