Will There Really Be a Diesel Shortage?

I'm skeptical about the diesel shortage. There is chart evidence both for and against. The two important charts are below. If you'd like some more discussion, see it here: Clearing the Smoke: Diesel Edition

I'm Shorting the Gap

That's quite the gap that's opened up between XLE and CL. There's a roughly 20 percent peformance gap open. It can go wider, 30 percent wouldn't be impossible, but this type of directional gap where one rises and the other falls is rare. This isn't necessarily going to close then, but the inverse correlation should end. Since XLE looks like a double-top here, I see XLE as offering similar downside potential as CL or USO, but without outperformance potential (for short positions) should the gap close.

Here's how performance went in 2014 and 2018. The latter looks more relevant to me given rising rates and falling stocks as part of the backdrop.

Are We Done Here?

The elevator doors are open and there is no elevator. Will the market step in today?

Short Every Rip

The stock market has been grinding lower and keeps taking out important support areas. If you look at the 1 minute chart or similarly short timeframe, you can see multiple hits on the ES at 3700 and 3680. There is resistance at these levels as well. Which way will the market go?

This trendline is incredibly important for whatever reason.

There is heavy call buying after previous high put buying, pushing prices way up.

The long-bonds continue cratering.

USDJPY has been hitting new highs day after day, but the Korean won paused. A resumption of highs would be bad news for bulls because the Chinese yuan will follow.

Gold made a new low this morning. It is going to plummet along with most other assets given how bonds and the U.S. dollar is behaving. It seems like everything is being suspended to prevent options from paying off at this month's opex.

The counter explanation is stocks are leading what will be a rally in all assets, including a reversal in the U.S. dollar, but the fly in the ointment remains stubbornly strong crude oil.

I posted a list of stocks last night. These are stocks that fell on high volume yesterday. There are a lot of symbols I've posted in previous months, going back to late last year. Many of these charts are already way down, yet also only now completeing topping patterns that point to far larger losses ahead. Point being, there are more targets than capital at this point. It's a shooting gallery for bears out there. If the indexes resume their move to new lows, there will be massive losses in the less liquid sectors of the market.

Better Off Red

ZB is heading for the measured move target of 121. TLT is in free fall. I do not know if 121 will hold or not. I'm agnostic here. As I've said before, I think ZB can bounce as stocks crater and it can bounce with a bull rally. If it is falling, then stock are probably going lower. ZB is at a new 52-week low. Don't over think it.

Gold, copper and oil are all below important horizontals that mark topping patterns. All three have collapse analogs. The Federal Reserve is doing what they did when commodities collapsed over the past decade. The charts are rolling over into h-like patterns. I have a simple two-part thesis. One, I think these charts are going lower. Two, if these charts go lower, they complete setups that forecast plunging prices. If they go lower, they go way lower. So I buy OTM puts. Since gold has lower expected volatility, I went with that one. I have November $150 strike puts on GLD.

Stocks say hold your horses. I can't ignore the counter-signal from the market because it can be a predictor. For now that's all it is, a prediction. Everything else says stocks are experiencing an internal technical move that will lose steam. Stock will recouple with commodities and bonds, and sink.

You know what didn't rally? Energy. I closed weekly puts I opened yesterday. I may or may not open them again. I am still holding some OTM COP puts for November. I also closed my USO puts that expire Friday yesterday. I may or may not reopen that position because as I posted yesterday, I think it's time for XLE to underperform USO. If oil goes higher, that is probably bad news for stocks and bonds.

I can see outlines of a dollar top in the euro, maybe even the Korean won, but not in the Japanese yen. Not the Chinese yuan. Currency crisis only needs one player. I view this as a high stakes situation because DXY is advising some caution that will be warranted if USDJPY tops out. The flipside is China could be forced into letting the yuan drop and last time that happened, stocks went almost straight down 10 percent in much better macro conditions. I'm playing the possibility of this with OTM puts on EEM for November. There's no support if emerging markets break lower and China is their lodestone.

Finally, BTC. It ain't screaming sell everything yet, but it also ain't rallying.

These aren't my only trades listed above, only ones relevant to these charts. My first thought will be to add more BigTech, energy and consumer staples shorts if the market turns lower. I did jump into some Apple November puts yesterday. Earnings season makes single-stock options trades pricier, but I might put some on in special cases or post-earnings.

Oops the Fed Did It Again

The best analogs are more than simply a price pattern.

Crude-Energy Gap Hits 25pc

The gap between where crude is trading and where energy has traded at that crude price, has opened up to at least 25 percent. As in, if crude drops I expect a 25 percent loss for funds such as XLE at a minimum. Of course this gap can close the other way with crude rallying. Since I'm bearish on crude though...

ES Fills the Gap, Commodities Down, Bonds Flat, Dollar Up

Stocks are racing ahead of everything else if a rally is coming, or they've gotten overextended before a new low is made 10 to 15 percent lower, leaning towards 15 percent since there's much more fuel for a drop now. Conversely, the move to the gap was where I was expecting stocks could move on this rally. Beyond this and things are much more bullish than they appear. The entire market activity since June looks like a complex double bottom. Stocks will likely rally into the new year if this holds, possibly into spring. From a societal perspetive, this is almost a worst case scenario because I can only imagine how many people will be trained to hold no matter what, and I still expect a massive bear market has begun. The 3820 level is only a stones throw away and if that base completes, a rally up to the 4000 area is possible.

Finally, I do not foresee commodities such as oil rallying with stocks from here. If wrong about that, then seriously consider moving your assets into secure political jurisdictions and prepare for either far-left or far-right populist governments. The public is already at a breaking point, but continuation of an economy that shovels "wealth" into the pockets of the "1 percent" at the price of impoverishing the "99 percent" will eventually catapult the first guy who says he'll smash the 1 percent into power. The 1 percent of course being whatever he convinces the public they are, but as we've learned the past two years, people can be convinced to do anything including wearing useless masks 24/7 and cheering for nuclear war.

Engulf Crisis

I will not be shocked if the S&P 500 Index ends up with a bearish engulfing candle into the close. Unlikely, but not impossible because last major support is around 3580 on the ES. As for stuff that is already or almost engulfed, here are a few. Note that if there is a trendline visible (uptrends, not horizontals), it is at last a few years old. Some are lifetime. I included QQQ to show how far away it is on the indexes. It would take a major drop in the last hour to get there. If the market drops another 50 points or so, them majors will still be well off Thursday's lows, but there will tons of these candles out there on individual securities.

Another one almost almost guaranteed if the market dips a little bit: Tesla.

Everybody Wants to Buy the Dip

ZH: Here Comes The Open Revolt: A Reeling Europe Lashes Out At The Fed For "Bringing Us To A World Recession"

At least that was the case until now: because today, in a startling outcry breaching the unspoken protocol of "no dissent, never dissent", Josep Borrell, the high representative of the 27-member EU bloc, lashed out all too publicly at the Fed when he said that central banks (across Europe where the recession will be far, far worse than in the US) are being forced to follow the Fed’s multiple rate rises to prevent their currencies from slumping against the dollar, and compared the US central bank’s influence to Germany’s dominance of European monetary policy before the creation of the euro.

Of course, back then the solution to the super deutsche mark was simple: pool all nations under a common currency umbrella, even if it means misery for the less productive, and less mercantilist countries (hence the neverending European sovereign debt crisis which remains in hibernation only thanks to the ECB's bond buying). This time however, there is no simple solution taking advantage of gullible states, instead now that they've broken the seal of silence, the "leaders" of Europe admit to just how powerless they truly are when the custodian of the world's reserve currency has to do what's best only for itself, allies and friends be damned:

“Everybody has to follow, because otherwise their currency will be [devalued],” Borrell said to an audience of EU ambassadors, the FT reported. “Everybody is running to increase interest rates, this will bring us to a world recession.”

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

How many people who say the reserve currency status makes USD strong also realize every other nation on Earth is printing money more aggressively? The moment the U.S. starts acting in its own interest, the world squeals for more U.S. money printing. The Bank of England extended their new "temporary" QE program today...

The path to total economic devastation is becoming clear. A Federal Reserve pivot in any form will reignite speculative activity. It will reward buy-the-dip. This will produce a mind-bending rally that could wipe some bears out. Apres cette...

Crude broke down yesterday. Along with my horizontal, I'll be watching $90.50 on crude this morning. Always pay attention when as asset is behaving well with respect to chart, particularly wildly psychotic assets (chart-wise) such as crude oil. I'm quite heavily short energy after adding more weekly puts on XLE yesterday.

Gold also behaved extremely well yesterday. First it hugged my higher horizontal (from my SlopeChart) and then held the final line on this chart.

BTC is hanging on. At this point, I admit to having some doubt that it will crack, but that's why its breakdown will be part of a larger capitulation event in the market. I'm not alone in thinking that.

I don't think this line is extremely important for the ES, but this is the last line I have on the chart. Below it, the "support" is the prior 52-week low made at the end of September.

There are still shorting opportunities for aggressive investors. XLP and XLE look particularly vulnerable, as do bank stocks if their earnings reports are negative. They start reporting on Friday. Another important report this week is Domino's on Thursday. I have puts on it and McDonald's. I don't know if the stock will breakdown this week or not, but there's a monster bearish setup. McDonald's is still below a long-term support line. It's the type of setup I want a position on. If Domino's guides lower or misses because of labor costs, the entire restaurant sector has bearish chart setups.

Finally, it seems that everyone wants to buy the dip, including myself and many bears. Everyone fears a Fed pivot could catch them mispositioned. If the market makes everyone lose, then maybe something very scary is about to happen that will make everyone fear holding stocks. Or something very good will happen that catches all the bears off guard. I lean towards the former rather than the latter, but the CPI is coming this week. Be on alert.

Russell 2000 Back to Pre-Covid Level

I'm not using my WAG line for anything, but I can't help but be amused.

Crude will be important this week. I have lots of bearish positions. Nothing bearish will be happening in crude (obviously) or the energy sector if it holds above that horizontal.

Crude in 2008 and 2022