Oil’s Plan B

Oil has been a great friend to stocks over the past several months, picking up the slack when USDJPY failed to deliver algo-driven gains.  But, every once in a while, enough investors pay attention to fundamentals that algos are — however temporarily — overridden.  Such is the case for CL.  From Bloomberg:

Iraq About to Flood Oil Market in New Front of OPEC Price War

(Bloomberg) — Iraq is taking OPEC’s strategy to defend its share of the global oil market to a new level. very sore

The nation plans to boost crude exports by about 26 percent to a record 3.75 million barrels a day next month, according to shipping programs, signaling an escalation of OPEC strategy to undercut U.S. shale drillers in the current market rout. The additional Iraqi oil is equal to about 800,000 barrels a day, or more than comes from OPEC member Qatar. The rest of the Organization of Petroleum Exporting Countries is expected to rubber stamp its policy to maintain output levels at a meeting on June 5.

The rapidly rising channels from the March lows have all fallen by the wayside, and CL’s best shot at helping to prop up stocks lies in a reversal at the purple .786 (56.78) later today.

Should it play out this way, the script would revolve around a widened purple channel that offers the white .618 as a midline waypoint.  But, the odds of reaching the target get more and more remote with each passing day.  We’ll see…

2015-05-27 CL daily 0625USDJPY has reasserted itself, breaking out prematurely to new highs in a reminder that it is still the undisputed primary driver of stock prices via the yen carry trade.  What else is new?  Sorry, Japanese consumers and manufacturers; but, an increase in your import expenses is a small price to pay for keeping stock prices on the rise.

2015-05-27 USDJPY 0625All these machinations leave DX in a state of nonsensical chartitude, again making a mockery of basic channel theory as it did in mid-March.  If CL finds support the the purple .786, look for DX to run out of steam at the red .618 (97.558.)

2015-05-27 DX daily 0625I don’t mind if prices occasionally dip above or below an acceleration channel in moments of exuberance or abject terror.  But, the chart above shows an abject disregard for maintaining even the appearance of legitimacy.

Such is the environment in which we find ourselves — where the determination to keep SPX on the rise trumps nearly all other financial and economic forces.  We’ve wondered for the past month whether or not the Last Big Butterfly pattern would produce the kind of downturn it should.

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