The expression “all hat, no saddle” was popular in Texas for a minute. It refers to someone who is all talk and no action.

Investors might have been impressed by Warsh’s bold talk yesterday…if only he had offered an equally bold action plan. Instead, he offered the kind of fuzzy, nebulous “trust-us-we’re-smarter-than-you” floridity that seldom convinces skeptics.

Yen strength is producing some dollar weakness this morning.  But, there’s a strong cross current from rising yields…

…at least on the 10Y.

The 2Y is reacting more sharply than the 10Y…

…which has produced a sharp bump in the 2s10s. Is it enough to lift it back above resistance? We’ll see. It means the difference between a correction and a crash.

Speaking of which…things are heating up in the Middle East again. Although WTI reversed off the flag pattern top, the risk of much higher prices hasn’t gone away. The pattern suggests new highs – which is consistent with my long-standing expectation that Iran is playing the long game while Trump desperately searches for an off ramp. Iranian leaders seem perfectly willing to absorb whatever blows may come if it means neutering Trump in the upcoming midterms.

It’s the regime change Trump promised – just not on the regime he was hoping for.

Futures are flat in advance of today’s FOMC announcement. I don’t know whether the FOMC will have the courage to announce a rate hike in the wake of the recent (dubious) CPI print. But, Trump’s inability to put the Middle East back together after single-handedly breaking it has left us with one of the most disastrous economic scenarios since the Great Financial Crisis.

CL has completed a very well-formed Flag Pattern targeting 131.54.

The 2s10s has finished its backtest and is prepped for a sizable downturn.

Both the 2Y and the 10Y have clearly broken out.

 

Futures are mixed on the eve of an FOMC meeting where a rate hike is a 35% possibility and a 10% one-day plunge in the Korean chip-heavy KOSPI index is a 100% certainty.

We’re coming into a big week of tech earnings, but the algos are focused on the decline in oil prices occasioned by two days of relative quiet in Iran.

 

continuing…

Yesterday’s ugly session was exactly what the bears needed to keep this correction going. Though futures are flat this morning, the road ahead will be increasingly fraught.

Now that CL has officially completed its flag pattern, we have to acknowledge the possibility of it reaching 130.50 as soon as early August.

This morning’s post will be cut short due to travel demands. All targets remain in force.

GLTA

We get tired of writing it, and the Street is apparently tired of hearing it. By “it”, we’re talking about economic data which is beyond belief. This morning, it means initial jobless claims supposedly dropping to 187k, the lowest since September 1969.

The skeptics and the hawks agree – this is not good for equities.

Combine it with sharply higher oil and gas prices…

…it’s no surprise that the 10Y has pushed to new highs, topping our 4.698 target and approaching our 4.755 target.

Don’t look now, but DXY is approaching new highs.

Futures are off modestly after yesterday’s VIX-driven splurge and ahead of tomorrow’s claims data.

This morning looks a lot like yesterday morning. Futures are higher, but off their overnight highs.

Getting a little bounce back this morning after Friday’s bloodbath.

It has been fueled by algos driven by VIX’s reversal at its SMA200.

Note that VX’s breakout is still intact. Just a backtest so far…

USDJPY is helping out.

And EURUSD is keeping DXY from rising too much.

Things are still getting messier in the Middle East, with talk of additional countries being pulled into the war.

Bonus charts:

Futures are off sharply as the rising wedge finally breaks down, signalling at least a 7.5% decline by mid-August. Recall, this is the point at which its SMA200 will its January highs.

SPX’s backtest target is more like 8.1% from its all-time highs.

While VIX is pressing up against overhead resistance…

…VX has already broken out.

Much will depend on DXY’s ability to finally break out…

…and the 2s10s’ ability to break back above 0.42……which basically means that 2Y yields fall faster than 10Y yields — a likely scenario given the ongoing inflation problems.

It would help if Trump could bring himself to disengage from his war on Iran. But, he seems much more focused on engineering a midterm win — which is even more unlikely given the inflation that his Iran War is generating.

My research shows an average August return since 2000 of about 0.4% – essentially flat – with a range of -6.4% (2001) to +7.0% (2020.) The average drop from the summer highs to the August lows, however, is about 6%.

But, August is rarely the low point in these selloffs. Seasonal weakness historically bottoms in late September/October. So, an August low is often undercut a few weeks later.

Stay frosty.