Update on Oil: Oct 3, 2017

At the time of our last update [see: Sep 7, 2017 Update], oil had reached our 49.75 upside target, selected because it marked: (a) a trend line dating back to June 2014, (b) the midline of a large, rising channel, and (c) CL’s 200-day moving average.  I called for a reversal, and apparently wasn’t alone in my thinking. CL plunged over 4% the following day — a nice start to the 13% drop I expected.

Needless to say, this was a problem for stocks, which had just flubbed an assault on the psychologically important 2500 (SPX) and faced resistance of its own.  As has happened countless times before, oil futures bottomed out and spiked higher right as the market opened.  SPX gapped open with an 18-pt gain and, thanks largely to CL’s recovery, never looked back.

The only problem with this scenario was inflation.  Gas futures (RB) had closed August on a high note, the top of a channel dating back to Aug 2015.  I had called for a reversal at 1.78, reasoning that inflation would spike higher unless RB fell sharply.

With stocks counting on CL’s continued ascent, and the Fed counting on RB tumbling, was there a scenario that could satisfy TPTB’s needs?  There was, but it involved some last-minute theatrics and required the EIA to falsify its gas price data for the month.

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