Yesterday, the API released quite bullish inventory data which showed a large draw in crude (-6.4MM vs -2.2MM exp.) — the biggest draw since August.  WTI futures rallied sharply on the news, while RBOB bumped a little higher before settling back down.

This might be discouraging to those shorting oil and gas.  But, the EIA will be releasing its own data shortly.  And, the two sources often disagree.

The other factor worth considering is that the last time we had an API-reported draw this big (mid-August) CL proceeded to sell off about 10%.  And, speculative net longs are at an all-time high.  It should be an interesting day.

USDJPY is about to tag its SMA100/200.  If our thesis is correct, the reaction will give CL/RBOB all the cover it needs to nosedive.

An additional fly in the inflation ointment:  is this the sort of Capital Goods new order backdrop that we should see right before a rate hike?continued for members…

VIX is holding on to the .886 after slipping a little on the measured move target.

But, USDJPY is nearing strong support.The daily picture… CL has reached a nominal new high, but with huge long positions against it and both EIA data and the results of next week’s OPEC meeting hanging in the balance.  As we’ve discussed before, its decline isn’t as important to CPI data as RB – at least the headline numbers. As a result, RB is not keeping pace with CL (RB also has much less impact on algos.)  No surprise that even API’s data wasn’t bullish.RB is hanging on to its SMA10 — but, it’s starting to look quite frayed around the edges.  This should be the last best shot at a nice short – especially for aggressive traders who don’t mind going all out.

Re equities, I’m still looking for at least a backtest of the broken channel.  Anything more, and there are plenty of downside targets… …as illustrated by SPX.  Note that yesterday’s nonsense rally busted the H&S Pattern, likely putting the final nail in the 2636 target’s coffin.There are a lot of troubling suppositions in the above.  How, for instance, is USDJPY supposed to rally strongly when the economic data doesn’t support a rate hike?  Will the Fed minutes due out today be hawkish enough to compensate?  Will the BoJ announce a major increase in accommodation?

Things get more and more complicated for the brain trust in Eccles.  I only know that if CPI keeps heading north (retail gas is up 20% as of today) of 2.2%, the odds of obvious stagflation go up.

Stay tuned.

UPDATE:  10:20 AM

USDJPY has tagged the SMA100 and 200 and should start bouncing here.  I’d be comfortable taking a long position here at 111.66 with relatively loose stops around 110.We should expect DXY to bottom here at 93.515, though EURUSD is a wildcard.  I’d try a long position with a target of 95.46 around Dec 5.  I’d have a mental stop around 93.27.If DXY does rally on a backtest of the small broken white channel to the top of the falling channel and/or the SMA200, we’d expect to see GC struggle.  I’d consider bailing on the long position from 1265 here at 1288.50.  Not much of a gain, but I think it’s going to have trouble making any headway until at least the Nov CPI data comes out on Dec 13.)

UPDATE:  10:33 AM

EIA says crude inventories decreased by 1.9MM barrels vs API’s 6.4.

This should put some pressure on both RB and CL.  But, as we’ve discussed already, it will likely be delayed until later in the week/month. And, if USDJPY doesn’t bounce, CL and RB will be needed to support stocks.  In this case, they’ll just make up the CPI numbers like last month.

A reminder, I’m taking the rest of the week off to be with family.  I wish everyone a Happy Thanksgiving!