More Where That Came From

Written by

We’ve been bearish on oil for quite a while, shorting it at 75.57 on October 3, 2018 after Jamal Khashoggi was dismembered and at each of the 3 subsequent peaks since then: just before the JCPOA breakup, the Abqaiq attack and the Aramco IPO — which should have been a peak, but resulted in a headfake “breakout” climaxing in the Al Asad attack.

Last night, CL dipped to within 0.41 and RB within 0.187 of our next downside targets. As members know, these are critical support levels. A breakdown would be devastating to oil and gas and present stocks with very strong headwinds.Futures, now at 3260, are headed straight for our next downside target at 3200.Yes, the coronavirus is potentially a very big deal. But, this decline in oil and gas was baked into the markets over a year ago and is a strong endorsement for our inflation model.

continued for members…At current levels, RB has probably reached a price which should help Feb/Mar CPI level out. It’s too late for January. The last IES measure for the month is taken today. As we discussed last night, we’re very much in potential bounce territory.

Significantly, ES’ red channel looks to have finally broken down and our purple channel backtest is looking quite good.Note that SPX closed at 3230 on Dec 31, so we’re just now coming up on the level which would result in a flat January. A tag at 3200 on Thursday Jan 30 and recovery to 3230 by Friday Jan 31 would be a non-event in the record books. Yes, this happened on Jan 7, but this time we have a nice breakdown in the 2s10s and bond yields… …and a breakout in VIX to go along with the futures action.USDJPY is staying on the sidelines – with more downside potential of its own to the SMA200 at 108.469. If that breaks down, the 107.64 lows from Jan 7 are likely to be tested again. Note that DXY remains at a level that offers a circuit breaker for stocks. A push above the SMA100 at 97.90 would likely settle things down.UPDATE: 3:49 PM