BTC is off over 7% this morning. It has spent the past two months in a flag pattern – a small channel which interrupts what in this case was a strong downtrend. It’s normally a continuation pattern, meaning that the downtrend is expected to continue following the interruption.
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Futures ripped higher on the news that July CPI came in 0.2% lower than expected on both the monthly and annual headline figures: 0.0% and 8.5%. Core rose 0.3% and 5.9% – still well above the Fed’s so-called 2% target.
Much has been made of the price drop seen in oil and gas since mid-June. But, it’s important to note that we’ve seen this happen several times before. The July YoY increase of 44.1% has been about the average low ever since Apr 2021, with several highs in the 60% range.
Prices would need to continue to decline in order for the YoY change in August to come in below 40%. And, our charts aren’t that all that convincing that oil/gas prices will continue to decline. Maybe if we had another COVID lockdown or a nice little recession…
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Gasoline futures (RBOB) have reached our 200-day moving average target set on March 3 [see: The Devil You Know] after having broken out of a falling flag pattern. Then…
…nothing would be as effective at punishing Russia and helping to solve the inflation problem as crashing the oil market…If oil does retreat, stocks should too. Reversing at the .786 would be a good start……as would RB reversing at its 1.618.
…and now.
By falling 33% since then, RB has given the economy several gifts, chief among them the opportunity to bring inflation down – if retail follows suit. EIA reported 4.272 per gallon for the month of March. July is shaping up as 4.41 – a tiny drop compared to futures prices.
The YoY increase in retail prices would remain elevated at 45%, down from June’s 60.7% but in line with average increases during Mar-May, when CPI averaged 8.46%.
Even if RB were to decline further, it face falling comps from August 2021. Retail prices remained steady from July to August. So, the onus is now on retailers to make a difference. And, something tells me they’re rather enjoying their windfall profits.
The top five oil companies – Shell, ExxonMobil, BP, Chevron and ConocoPhillips – saw their Q1 profits triple from 2021 to 2022. ExxonMobil, for instance, netted $2.7 billion in Q1 2021 and $8.8 billion in Q1 2022. It is expected to report over $10 billion in Q2. Taking into account futures prices, it is obvious that the Russian invasion of Ukraine has provided cover for what’s really just good old American greed.
Meanwhile, equities markets are trying to make sense of the ECB’s 50 bps rate hike (all the way up to zero!)
Hate to tell you, Ms. Lagarde, but 0% in an 8.6% inflationary environment with a 2% inflation target is still wildly stimulative – not to mention delusional.
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As anyone on a budget could tell you, the headline of this post is hardly news. Income isn’t keeping up with expenses, and isn’t likely to any time soon.
The Fed might prefer PCE over CPI because it ignores food and gas prices. But, it’s those very categories which are making it difficult for the average family to make ends meet.
Futures were already off by 1.25% before the data hit the wires. Our analog, still on track, suggests the decline is going to accelerate in the coming weeks.
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My apologies for today’s post being so late. Our webhosting company just now fixed the “network connectivity problem in one of [their] clusters.” I’d be very upset about it except for the fact that this is the very first time in over two years that they’ve ever let me down. This post will be a retrospective instead of a look ahead at today’s session.
Bitcoin reached our next downside target over the weekend: the dual Fibonacci targets of 17,611/17,692. Like everything else over the holiday weekend, it bounced pretty strongly. And, just like everything else, it won’t last. As we detailed in our last BTC update [see: Bitcoin’s Meltdown] there is substantially more downside ahead.
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USDJPY finally tagged our 132.22 target overnight…
…a target we set over six months ago [see: Update on Currencies Nov 17, 2021]:
Ordinarily, this might be a good thing for stocks. Not this time, as it echos the dollar’s strength against the euro.
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Futures have bounced about 1% overnight, retracing a Fibonacci 61.8% of the losses from Thursday’s highs.
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Per our analog, today is the next significant turning point – important in terms of confirming the direction and distance of the market’s next move. It has done an excellent job of forecasting the reversals, rallies and drops since we first posted it on May 13 [see: Analog Watch.] 
The first time I came across one of these, it worked out spectacularly. I started noticing in May 2011 that the turning points and rallies/declines which had been occurring at that time very closely matched those of the 2007 top.
Just after Day 32 in late June [see: Deja Vu All Over Again] I began laying the entire roadmap which would presumably end with a very sharp drop of around 20% by Day 70. As it turned out, the S&P 500 plunged 19.6% by Day 69. Details are available HERE.
The current analog is different in terms of how quickly things will play out. If it plays out, however, the market is in for much greater losses in the months ahead.
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Futures are all over the map this morning, with the overnight losses largely erased at one point.
The key, though, is that SPX bounced back above a key Fib level after tagging its 20% target last week. Although it’s still early stages, our analog is in play.
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SPX closed below important support yesterday, suggesting that the current leg down isn’t yet over. Indeed, things could get worse.
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