Markets and Oil

Outlook 

The market could barely muster a bounce to which we called with the disclaimer that the trend is down. We further stated that we are already in a stealth recession. By that we mean that like inflation the signs appear at different sectors at different times. 

You can best see that with oil. It was one of the first places inflation showed itself. Then, the president opened the nation's oil reserve and stated that the Arabs would produce more oil. The price slowly declined. The pulpit is a strong influence, but time reveals the truth. OPEC publically stated that they will reduce production by two million barrels a day. Demand has been leveled by higher prices. By that we mean even though oil usage has fallen, the higher price maintains the margins. The price of oil shares has risen.

Elsewhere...

Tuesday's price action fell below Monday's low and then, finished higher. This is an indicator of a bounce. However, on the flipside, the VIX is breaking to the upside and it also breached its channel, upward. It shows this on both a weekly and monthly chart. This is bearish. Market might be saying that we will be range bound until the next Fed meeting? However, globally the UK is a mess.

It has the on-going instability in the English marketplace. Their central bank had to intervene again and left the door open for more stimulus. The pound will continue to decline. The IMF said the UK will be hurt the most by inflation. Speaking of the devil, the US showed another inverted yield. You can buy a 10-Year note and barely receive 4% or you can purchase a 2-Year bill and get 4.3%. Some nation is sinking a lot of money to move rates and for what purpose? However, we are talking about the market in general. In that aspect...

Chips...

led the market up and they are leading it down. The SMH index fell to 188 last Friday. It was 245 in August. It looks like 160 is the target and resistance.

Gaps...

are important. The window may eventually close, but the key word means time. The present state of the market is revealing many gaps in price. There are gaps in the continuous contract in oil. We, at Evolution always use oil because it is the most important commodity after food and water. Unlike the Federal Reserve, we need it everyday. $Brent closed Friday at $98.45. It looks to retest resistance at $102. This will raise the price of US crude. It looks to retest resistance at $96. Keep in mind that the US oil price burst through its 50-day moving average of $87 and $96 is also the 200-day average. Of course, oil is only one segment of the market. The rest is being thrown out as buyers will only venture upto a certain price. At the moment, sellers close positions at a certain level. This will change.

Last Friday, the Dow had a huge gap down. The market already broke the June lows in a big way. We repeat what we already stated. The Dow looks to test resistance at 26,000. The transports are driving to the roadblock at 11,000. The S&P is gaining strength to test resistance at 32,000.

Other aspects

Oil received a blow last week. The world's largest reinsurance firm, Munich Re declared that after the end of the year, it will no longer insure new projects. If an oil firm cannot get insurance, it cannot get financing. This is even a bigger blow to consumers. It adds inflation to the cost of oil. The latest an oil firm can get insurance from Munich is next April. There are 30 firms that offer this service and now, 13 are cancelling applications and opting out of this business. 

An analyst, Mish Schneider who specializes in commodities says from her research that when gold out performs the S&P, commodities begin to rise. Something to watch?

Putting these aspects together and with what we have already compiled, we believe stagflation is our biggest and most dangerous danger other than the escalation of the Ukraine war. Try to live your life as best as you can and add love as best as you can.    Peace.