Crude Cycles Could Offer Clues About Inflation
|July 23, 2021|
Mark Newton CMT, Newton Advisors, LLC
SPY- SPDR S&P 500 ETF Trust
Support: 431, 427-8, 422, 417-417.50
Resistance: 437.80-438, 440
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SPY – (3-5 Days)- Poor risk/reward and strong resistance near last week’s highs. Bearish- I don’t feel there’s much value in playing for a continued follow-through, despite my cautiousness over the last 2 days not paying off. Momentum remains negatively sloped, and I’m expecting this should materialize like May’s mid-month bounce which still required consolidation before new highs. I’ll still bet on a 50-62% pullback of our recent bounce BEFORE a move back to new highs with targets at 4280-4290.
FEZ (3-5 Days)- Bearish- Rally did not break the downtrend from early June, and thus, still early to be too bullish here. Sell, expecting a pullback down to near 44
Technical Long/Short Focus list 7/21/21
Top Technical Developments
1) Sharp rally continued Wednesday with another day of strong breadth, albeit less than Tuesday’s move. Prices are stretched here and momentum negative, creating a rather poor risk/reward near-term. QQQ lagged S&P
2) Small-cap IWM, Financials ETF (RYF, XLF) both turned back up to exceed minor resistance from where these broke down last week. A minor positive, though more is needed to reassert the uptrend
3) DJ Transportation Avg rallied back up to 2 month trendline resistance and Transports have a make-or-break area at 14,800 that’s important to monitor
4) Crude oil thoughts have changed given wave structure developments and weekly Cycles, and might now weaken into August and longer down to the mid-50s. I’m now a bit more skeptical that WTI moves back to new highs right away, but WTI regaining 71 in front mth Futures would postpone the selloff
5) Treasury yields turned up two straight days, though failed to make sufficient movement to kick off a move higher right away in yields. it’s thought that backing and filling here also makes sense for yields ahead of a Treasury selloff/yield rally
6) July seasonality studies show the back half of July to be quite negative and different than May/June, with July 21st in particular being the worst percentage wise of being an UP day, of the year. That obviously did not materialize, but still expect that the next 3-5 days might turn in negative before any bounce back to highs.
7) Elliott-wave patterns indicate an ongoing 4th wave corrective pattern that likely still leads down under this week’s lows before any bottom is in. Structurally this looks to have taken the form of an A wave down and now a developing B wave (where wave A of B should be complete)
8) No change in VIX term structure- ((Front mth VIX was still well below back month futures , & typically we do see inversion prior to a low
9) High Yield has shown MORE evidence of technical damage than anytime in recent months- We see High Yield option adjusted spread and also LQD v JNK to be rising sharply, which makes it a time to pay attention.
QQQ, similar to S&P, looks like a poor risk/reward in the short run, and one should still not rule out the ability of this 2 day bounce to give some back, similar to what happened in May (given 2 month trend breaks and momentum having rolled over). Stocks like AAPL made good peaks near prior January highs, and still look apt to show some consolidation before pushing up to technical targets near 160-165. Overall, given the move in High yield this week, i expect its difficult to just ignore all this Technical weakness and continue to play for higher and higher prices. ( i.e. Last week’s decline thus far was MORE negative than the 2 day rally this week is positive ) While i’ll respect a push to new highs when it occurs, for now, QQQ should find strong resistance near 362 on Thursday, and back off down to 356-357 before trying to turn back higher to 365. Low conviction at present on trying to sell into this without more proof, but daily chart shown just to illustrate some of the damage that’s clearly being overlooked by many.
DJ Transports up to Make-or-Break levels- Dow Jones Transportation Average did bounce for the last two days, similar to US benchmark indices like the stronger DJIA and SPX, and now finds itself at an important juncture. Movement back above 14,800 would clearly be a positive, without a doubt, breaking its trendline over the last few months, after DJT peaked in May and promptly dropped 10% in two months. Yet, it’s tough putting too much stock in Airlines and Transportation companies gaining too much just yet with prices right up against this area. Thus, while Financials and Small caps both look to have remarkably recovered some of the short-term resistance they needed to, Transports are truly what to watch to gain MORE confidence in the markets ability to turn higher in August.
Weekly Crude cycles show a good possibility of 2h 2021 weakness, which means that last week’s selloff on Output changes very well might have set the tone for additional weakness heading into Crude’s seasonally weak time. As we all recall, Energy the sector peaked out a full month ahead of WTI, and subsequently broke down sharply as Crude weakened last week. While Energy was higher Wednesday to the tune of nearly 4%, the weekly and monthly stats put this at the worst of all major sectors. Thus, this needs some major work to put this sector back on track. Crude has neared $71 in front month futures, which is thought to be an important technical level. Yet, when eyeing some of the cycles which have governed Crude’s moves over the last Decade, namely the 144 week, 189 week and 289 week (Double 144), and linked to Fibonacci, these have actually shown excellent historical “Fit” to turns back in 2008, 2011, 2014 and also 2018. (These all have excellent Bartel scores and strength, and were assembled by myself with the Cycle Finder from the Foundation of the Study of Cycles ) They now peak this Summer and turn down into 2022 before turning back up. Thus, if Energy is going to weaken in the months ahead, this would seem to be a favorable “sigh of relief” to the inflation picture for the Fed. I suspect OIH goes to 166 and WTI Crude might stall and turn down to 61-62 initially.
ML Newton Advisors LLC
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