The “Iranian attack” on two oil tankers is looking sketchier by the minute.  Overnight, the president of the company which owns one of the tankers cast more doubt on the official narrative that the tankers were damaged by Iranian mines:

…in remarks to Japanese media, the president of the company that owns the ship said the vessel wasn’t damaged by a mine. “A mine doesn’t damage a ship above sea level,” said Yutaka Katada, president of Kokuka Sangyo, the owner and operator of the vessel. “We aren’t sure exactly what hit, but it was something flying towards the ship,” he said.

WTI never broke out yesterday, and it continues to tread water this morning — leaving equities to fend for themselves.

Speaking of treading water, futures have yet to show their hand even as we approach what our model shows to be an important downturn.  It’s not unusual for markets to go sideways or pile on a little extra cushion in the days leading up to an FOMC meeting. But, this is getting a bit tiresome.

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WTI has regained its losses of the past two sessions, jumping 4% after news of two tankers being attacked in the Gulf of Oman.  This is happening on the eve of another leg down in the price of WTI and RBOB.

This is problematic for many reasons.  As a major driver of equity prices, a rise in the price of oil has reversed futures fortunes — from a sharp overnight loss to a 10-pt overnight gain.Many believe Trump is itching for a fight with Iran — the better to satisfy the neocons and earn Trump an opportunistic bump in the polls.

But, an increase in oil prices would put a serious dent in Trump’s campaign to lower interest rates.  Higher oil and gas prices means higher inflation which makes it that much less likely the Fed will reduce rates any time soon.

It was one thing for Trump to threaten Iran on Twitter. It’s quite another for him to give Pompeo and Bolton free rein to retaliate for an Iranian provocation — whether real or Tonkinesque.

Stay tuned.

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CPI came in at 1.8%, down from 2.0% in April.  Core CPI registered 2.0%, down from 2.1%.  For the month, CPI rose 0.1% in May versus 0.3% in April.  Core rose 0.1% for the fourth straight month.

A slew of categories fell in May, with the big drops coming in energy and vehicles offsetting increases in food and shelter.  Had gasoline prices not dropped substantially over the past month, we’d probably be looking at 2.0% CPI again.

All in all, the results simply don’t scream “rate cut.”  This should disappoint the market.  So far, the futures are taking things in stride.  But, there’s a big potential downdraft if ES drops through 2872.continued for members… (more…)

So said Trump regarding the FOMC in a tweet this morning.

This is because the Euro and other currencies are devalued against the dollar, putting the U.S. at a big disadvantage. The Fed Interest rate way to high, added to ridiculous quantitative tightening! They don’t have a clue! https://t.co/0CpnUzJqB9

With oil and gas having tanked noticeably over the past six weeks, we’ll soon find out how low inflation has sunk.  In the meantime, the possibility of Fed easing is fueling a continuing meltup — with the futures currently indicating a 17-pt gain.

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Fireman Trump has snuffed out the flames that pyromaniac Trump set last week. The futures are melting up in appreciation — and, because nearly every one of our factors is supporting them this morning.

Perhaps the two biggest moves in the after-hours: AAPL has pushed through its SMA200……and, BA is waking up to the specter of a potential death cross. continued for members… (more…)

It’s been a while since we dedicated a post to all the currencies we follow.  Since USDJPY, EURUSD and DXY are closing in on our targets, it seems like a good time to remedy that situation.

Lately, the driver has been interest rates or, more specifically, interest rate expectations.  Note that TNX finally officially tagged our 20.34 target.But, there are other factors at work.  Just yesterday, JPM opined that the BoJ will likely drop short-term interest rates from -0.1% to -0.3% and the 10Y to -0.2%  Why?  They want to stay well ahead of the US in debasing their currency.

Another story which caught my eye was this one about a Danish bank offering negative interest rates on mortgages.  Imagine taking out a mortgage and having the bank pay you interest.

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The best part of being a chartist is discovering a pattern that promises a big move and then seeing that move play out.  The worst part of being a chartist is waiting for the move to play out.  These days, those waits can last forever.  But, they’re worth it.

A case in point is the 10Y, which came within 3bps of our next downside target earlier this week……or the e-minis — which nailed our interim downside target on May 31.  Since then, we’ve been waiting for the next shoe to drop.  The sharp bounce in equities over the past two days has tested the patience of those of us looking for much more downside.

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If the past couple of days seem somewhat familiar, it’s because we saw a similar pattern in March.  After backtesting the 2.24 Fib extension (2728.79) on March 8, ES rebounded sharply — closing barely in the red for the day and roaring 50 points higher the following day.  It didn’t stop until it had piled on 233 points — about 8.5%.Repeated bounces off a horizontal line of support can be great for stocks – indicating that it’s safe to buy. The only hitch is if the third bounce only extends as far as the initial one. In such a case, we have the potential for a Head & Shoulders Pattern — which is quite bearish.

We’ve seen it happen twice already: the neckline between Apr 3 and May 8 which targeted 2806 (ES reached 2799) and on a larger scale between Mar 12 and May 28 which targets 2638 (a 10.9% from the April highs.)

This one is a little suspect, however, as ES bounced back above the neckline (for now) at 2806. In so doing, it also broke out of the falling purple channel,

The bulls have the reins as long as they can keep ES above 2806 — broken above the neckline and broken out of the falling purple channel.  But, if it should fall back below 2806, then the H&S targeting 2638 will be back in business and we’ll set up a much bigger H&S (with the 2.24 Fib as the neckline) targeting 2495.  This would be a 15.7% drop from the all-time highs.

Bottom line — if this break out turns out to be a head fake, watch out below.

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It’s been a great time to be a chartist, lately.  ES reached our 2.24 Fib target yesterday, reaching 2728.75 around noon and bouncing 40+ points to nearly the SMA200.  At the same time, AAPL came within .27 of its next downside target……and TNX came within 0.15 of its next downside target.But, it’s the factors which haven’t reached their targets which suggest there’s more fun ahead for the bears — that the current bounce is probably a nifty bit of misdirection.

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About a month ago SPX/ES pushed to new all-time highs, suggesting stocks were off to the races.  I wasn’t convinced.  From our April 29 post:

A move above the Sep highs is technically bullish. So, trend followers will be compelled to go/stay long with the former highs as their stop.  Personally, I would be extremely cautious in chasing it, keeping an eye out for rejection and shorting it if/when it drops back through 2940.

We labeled the downside targets and waited to see if the rising wedge would break down.  Spoilers…it did.

Now, 7.7% later, we’re presented with a new challenge. ES came within a few points of our 2728 target overnight.  Will it get a bounce here or is it susceptible to additional downside?According to our bond charts, there’s more pain to come.

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