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.

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.

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...

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.

All My Positions

I have short positions of varying size on all of these. In terms of number of options, XLP is by far the largest position. By dollar size, CME, APPL, MCD, SHW are relatively large. If I group together all my energy positions XLE, COP and USO, that would be larger than everything, but some of these are weekly puts that I may take off early next week if crude doesn't dip quickly. XLP puts are cheaper though, and thus I anticipate they could be my largest position at the conclusion.

Update: I forgot to list BITI calls, a short position on BTC.

Crude in 2008 and 2022

Shorting Energy Again

I am a glutton for punishment.

Reversal Wednesday

I remember days like this in 2022. The stock market rallies hard, but bonds are blown to smithereens and crude oil surges. The structural makeup of the market turned very bearish, yet bulls kept piling in and bears were chased out. I did have a good day trade that more than offset all my losses elsewhere.The main trade besides that was adding more energy short positions.

Update: This chart shows the raito of USO and TLT, along with SPY/QQQ ratio. Then it is USO/TLT inverted with SPY. This looks like late May to me.

USO at the 61.8pc Retrace

Short Energy

Putting an energy short on here for October.