I started writing this post two weeks ago, after oil nailed our latest downside target (from Jul 31: 46.46) and was rallying nicely.   Of course, a lot has happened since then.

I had been taken aback by the news that Andy Hall, such a prolific oil trader that he earned the moniker “God,” was shuttering his main hedge fund after sustaining a 30% loss trading oil so far this year.

I know nothing about Andy’s investment strategy or trading style [though he had a “colorful” reputation]  But, this was a stark reminder of how fundamental analysis has utterly failed oil traders. We have only to look at the recent post-Harvey fluctuations to see the disconnect.

In the past three years, our periodic, directional calls on WTI have averaged over 500% annually.  Our success has rested almost entirely on ignoring fundamentals and focusing on the things which have mattered: inflation, interest rates and stock prices.

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I’m focusing on oil this morning, so the regular array of charts will be somewhat delayed.  Not to worry, as our targets remain unchanged from yesterday.

The only updates relate to the EURUSD, which found no reason to reverse following Draghi’s comments.  The USD continues to drop toward our downside target.

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Aside from the troubling headlines, yesterday’s price action was driven by continuing weakness in the USD (especially USDJPY) and oil’s inability to push through important overhead resistance.

This morning, oil is pushing above that resistance.  We won’t see EIA inventory data until tomorrow, due to the holiday.  So, it remains to be seen whether traders will jump on board this move, or it’ll reverse intraday.

If it does, we still have no shortage of lower price targets.  ES had no trouble reaching yesterday’s initial downside target, with a drop through 2450 before VIX was wrestled back under control.

After the overnight ramp, it’s again threatening a breakout.  We saw how that went yesterday.  Is this yet another 1% V-shaped recovery, or a potential head fake?

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Just a quick housekeeping note…I will post until 10:30 this morning, then have to hit the road for some meetings.  With any luck, I hope to get an updated oil forecast posted as well.  But, there’s a pretty good thunderstorm brewing here in Boston, and I’m wondering how long the power will remain on…

First, a quick look at WTI shows it’s running into resistance at the red TL and SMA200.  Time for a reversal.

The big picture for SPX and ES, just in case things get out of hand.

The initial bump should get SPX up to a backtest of the red channel, with the SMA5 200 just above at 2468.95.  My gut tells me we’ll get another leg down.  But, we’ll have to see what happens with CL, VIX and USDJPY.  USDJPY continues to limp along, with yesterday’s dovish Fed comments not helping much.   It’s the .618 Fib that intersects with the white channel bottom that has me thinking this could be more than the usual 1% V-shaped dip.Also, we’ve been keeping an eye on COMP, which just missed tagging its SMA10 yesterday.  Might it take another swipe at it today?

And, last, VIX — which has two clearly defined upside targets if allowed to go in that direction.

UPDATE:  10:06 AM

VIX has dropped down to test the SMA200, and USDJPY is rallying for no particular reason.  Otherwise, the initial pop would have fizzled by now.  But, it’s still early… I think it’s as simple as whether or not VIX bounces at the SMA200.  If it does, we’re looking at another leg down to 2438 or lower.  If it plunges through it, then 2482.I’m going to focus on CL and try to get that posted before I have to take off.

UPDATE:  3:30 PM

SPX is sitting just above the SMA5 200, exactly where it’s either going to reverse lower or break out.  The implication is that it’s going higher to the .886.  But, the fact that VIX hasn’t collapsed or CL broken out or USDJPY made new highs argues otherwise.

Note that VIX is below the SMA200, but not below the yellow channel bottom.  It’s either a pretty good tell or a pretty good head fake.

As to CL, I think this is the top.  But, I have more calculations to do before providing a target.  I’m in transit, but should have a chance to post those charts around 5:30-6:00 EST.

UPDATE:  6:20 PM

For CL, the two charts below support my expectation that prices are headed lower.  Whether you’re talking about CL or RBOB, the August YoY comps spell higher inflation than the Fed would like (higher inflation = pressure to raise rates…not desirable in this environment with slowing economy and high “hidden” inflation.)

I don’t have my oil price database with me on this trip.  But, the EIA is showing a very healthy monthly increase in average gas prices for August (3.9% MoM and 8.4% YoY.)   I believe this is understated, but  my back of the envelope calculations indicate CPI should come in at 1.9% or higher.

Given that August’s YoY increase will be wildly higher, we should expect CPI to easily exceed 2% and potentially 2.5%.  I think the Fed will have no choice but to try to tamp down inflation and, therefore, oil/gas prices.  The fact that API reported a 2.8 million barrel build versus last weeks 5.78 million barrel draw is icing on the cake.  But, we’ll find out for sure tomorrow morning when EIA data is released.

More tomorrow morning.

 

As the great philosopher would say, that escalated quickly.  Yesterday, gold reached our purple target detailed in our last update [see: Gold, Ready to Shine?]

As we pointed out in June, 1348.60 is a key price level, as it represents 2 channel lines and the .886 retracement of the plunge from 1377 in July 2016…If GC is able to remain atop its SMA10/20 for the ride up to 1348.60, by all means ride along.

We’ll take a quick look at what to expect next.

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Stocks were well on their way to a breakout over the holiday weekend, a common enough occurrence — when reality demanded a pit stop (hydrogen bombs and impending ICBM launches can have that effect.)

S&P futures dropped 20 points from Friday’s highs by the time they reopened Sunday.  Even after a concerted ramp job, things still looked dicey for today’s open as of a couple of hours ago.  The rising red channel had broken down and hinted at a corrective C-wave down to 2450ish.But, that was before the algos got busy.  Now, with 20 minutes till the open, a breakout is solidly back on the table.  As one reader pointed out the other day, what’s it going to take for stocks to sell off?Glad you asked.

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VIX completed the first breakdown we discussed yesterday, but stopped short of dropping through the white channel midline.  Thus, although the implications are bullish, equities have yet to actually break out.continued for members… (more…)