As expected, PPI shot up for September, coming in at 2.6%.  Also as expected, the spike is being blamed on energy prices which are, in turn, being blamed on Hurricane Harvey.

While the logic is legit, it remains to be seen whether oil and gas prices will remain in their ramped-up states once investors do the CPI math.  I remain bearish on both, but especially RB.

continued for members…

Not so coincidentally, the IEA just released a fairly bearish report on the state of the industry.  So far, CL and RB are taking it on the chin. Futures are selling off again as VIX, which broke off its initial assault on 10.71, has found new support.But, so has ES.Our downside case remains unchanged, and still relies on ES dropping through all that Fib support that VIX, USDJPY, CL and RB helped it rise above. It’s a complicated scenario, so I’ll restate it.  My basic premise has been that the Fed wants CPI at 2% – no higher (even at 2%, it vastly understates true inflation.)  While spikes in CL and RB help prop up stocks, they cause spikes in inflation, which is not acceptable.

The Fed also wants a strong dollar but low interest rates.  It can play all the games it wants with short-term rates (in order to have a place from which the lower them when the next disaster occurs.)  But, longer-term rates must remain where they are in order to avoid a fiscal meltdown.

The conflict between strong dollar and low rates is apparent in the behavior of DXY and USDJPY — which is one of the principle tools with which stocks are propped up.  If the dollar weakens any more, as investors question the likelihood of a rate hike, it will boost inflation.

Otherwise, it’s hard to be bullish on DXY, CL or RB — which is why I’ve been clinging to the notion of a small drop by ES and SPX to backtest 2500.

The counterargument, as laid out on Sep 25, is that the Fed wants short rates to rise in order to have more breathing room for the next downturn.  As such, CL and RB will be allowed to continue rallying, the point being to inflate CPI a bit.

Since CL just pushed back above its SMA10 and RB its SMA200, we should find out soon enough whether this bounce might turn into something more.  I believe they are the most important charts right now.

I’ll be off the remainder of the day to pack and get ready for our move. I’ll post after the close if anything earth shattering occurs. This will be my MO for the remainder of this week and next.

GLTA.