It was an interesting weekend.  Futures sold off as much as 8 points yesterday, but were right back to green on this morning’s open.  It remains to be seen whether they can remain in positive territory as CL sells off again.

We remain short from Friday at 2146, but there are plenty of trip wires ahead.

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Yesterday’s decision to go long at SPX 2115.74 paid off in spades, even more so if you held on through the close.  CL, which backtested the white channel top as expected, verified the falling purple channel on the bearish EIA data dump and then proceeded to break out of that same channel overnight.

Likewise, USDJPY — which had broken down through a rising TL from Sep 26 — magically recovered overnight.

The eminis are ecstatic over these developments and have now bounced 30 points from yesterday’s lows.  There’s a dark cloud on the horizon, though, which could spoil the party.

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SPX managed to hold the key 2138 level yesterday, going into meltup mode following release of the Fed minutes and closing just above it at 2139.18 — but, just below the SMA100, thus triggering a short position.

Hawkish minutes will almost certainly result in lower prices, with downside targets of 2126.06, 2116.61 and 2102.56…any sustained drop through the SMA100 at 2138.57 should be shorted.

But, that was before USDJPY broke down, CL dipped overnight (to tag our 49.50 target) and DB continued selling off after reaching our 13.98 target [see: Deutsche Bank: Will it Survive?]

Even USDJPY is falling after a failed breakout that finally saw it tag a key midline.  There’s no doubt 2138 will be severely tested again today.  Will yesterday’s initial downside target of 2126.06 hold or will we see new lows?

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We’ve had multiple target tags the past few sessions, with the latest being CL – which just reached our upside target.  The chart below, from our Oct 3 Update on Oil, illustrates the timing issue TPTB face with CL’s rise from February.

As discussed yesterday in Welcome to Peak Oil continued rise will certainly help support equities, but it would result in higher year-over-year inflation measurements — which would strengthen the argument for higher rates.So, from here on we’re on breakout/breakdown watch.  CL, USDJPY, VIX, DX…they’re all in a position to do one or the other.  And, don’t forget about DB, which reached our 13.88 target yesterday: the 61.8% retracement of its latest plunge.continued for members… (more…)

The term “peak oil,” per Wikipedia, is the point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline.

To yours truly, it refers to the point in time at which oil prices must begin to decline lest their effect on inflation become problematic. Today is that day.

To understand the significance, we have to go back to Jul 2014. USDJPY, the primary driver of stock prices via the yen carry trade, broke out (yen declined) after a protracted consolidation [for more: see What Really Drives Stock Prices?]  Having the yen rapidly drop in value might have produced inconvenient inflation in Japan, which imports all of its oil.

Fortunately, there was one simple way to cope with it: crash the oil market. As the chart below shows, the two events were simultaneous. CL plummeted from 107 in Jun 2014 to 26.05 in Feb 2016 as USDJPY shot higher.

When USDJPY reached 126, however, it ran into overwhelming overhead resistance and began a precipitous decline. Stocks, which had relied on an ever-rising USDJPY, were not amused.

In fact, every time USDJPY dipped below the critical 120.11 level (dotted yellow line below), SPX fell off a cliff.   The Powers That Be needed a new way to prop up “markets.”To TPTB’s delight, they discovered they could manipulate the price of stocks as easily with CL as they had with USDJPY.  Remember, a dropping USDJPY means the yen is appreciating.

So, rising oil prices were acceptable to both Japan and the US which, given the recent declines, had plenty of leeway to allow prices to “recover.” Indeed, a recovery was necessary in order to prevent another round of bank failures.

On Feb 11, CL bottomed as expected at 26.05 and nearly doubled over the following four months.  Stocks also recovered sharply, even as USDJPY dropped like a rock.

By now, you might be thinking “this is all well and good, but what does it have to do with peak oil?”

Simply put, today marks the one year anniversary of the beginning of CL’s last plunge: from 50.92 on Oct 9, 2015 to 26.05 on Feb 11, 2016.  Given where CL is now, every tick higher will theoretically manifest in higher inflation (year-over-year.)  Now, consider where it would need to go in order to avoid such inflation.  That’s right, back below 30 (not likely, as it would crash equity markets all over again.)

Again, inflation would be a most inconvenient development for central banks which have used the threat of deflation to justify quantitative easing and other unprecedented intervention in financial markets.From here on, TPTB must either: (1) resign themselves to higher inflation going forward, which would ultimately necessitate higher interest rates and thus crash equity markets; or, (2) rev up the yen carry trade again; or, (3) find a new carry trade to keep equity prices on the rise.

Is it any surprise that USDJPY recently broke out of the falling red channel it’s been in since Oct 2015?We remain long from 2147.65 on Oct 4, with last week’s upside target price unchanged.

GLTA.

 

 

 

 

 

 

The short answer: not much longer, as I’ll explain below.

Our forecast remains on track, despite the unnerving chop and deteriorating news flow.  The latest: the British pound, which flash crashed yesterday despite the supposed control of TPTB.We remain long from 2148.63 on Tuesday.

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Running a little late this morning, so two quick charts right up front.  Everything I posted yesterday still applies.

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Just a quick post this morning.  Yesterday, ES nailed our downside target from Monday, meaning SPX slightly overshot its at 2144.01 vs 2147.65.

The drum I’ve been beating this week still resonates this morning.  CL topped its Aug 19 highs.  This suggests a break out, though it’s still early in the day.continued for members… (more…)

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Today, it’s all about oil — which reached our next upside price target yesterday.  I know, I know. Most investors are focused on how the ECB and German government will bail out Deutsche, or what Evans and Lacker might have to say, or even the NY ISM data.  And, I’d be shocked if oil even makes any headlines, today.

Still, it’s the most important chart I’m watching at the moment.  As I noted in yesterday’s Update on Oil, whether or not it breaks out or reverses at this point will determine not only where stocks go for the next few months, but whether or not the economy is able to muddle through.

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