Oil Continues to Power Higher. Is the S&P Selloff Over?

We need yields to settle down.

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Our View

I think there is some scary stuff going on and one is crude oil. If the US was to go to war, it would require the use of the US oil reserves. If you recall, crude oil was trading around the $67 level when Trump took office in February of 2017, but after an increase in production during the beginning of the COVID it dropped down to $24.21 a barrel. By April of 2022, crude oil traded up to $110.45 after the Biden administration took office as the Democrats pushed their go-green policy and cut fossil fuel production, pushing prices up dramatically.

Look, the part that bothers me is that the go-green policies totally overlook the geopolitical landscape. First, China is the largest polluter in the world and while they say they are moving away from fossil fuel, I say it’s all BS. They have been buying commodities and oil at any price since Trump took office. A lot has changed since then, the first being the Russian invasion of Ukraine. The other is all the new alliances that the US are not part of, which include the largest oil producers in the world.

I think the two charts by Crescat Capital speak louder than words, US oil reserves are at a historic low and demand is at the highest level in years.

I think there are a lot of other things to be concerned about: higher interest rates, Moody’s bank downgrades, the billions in defaults from commercial real estate, inflation, and the possibility of WWIII. I always said Pitin would not get stepped on forever and with the Black Sea closed and the Saudies cutting production and the US ramping up its military presence in the Persian Gulf and taking on China, should war break out crude oil could easily go to $150 or even $200.

MiM and Daily Recap

The ES traded as high as 4541 on Globex, but opened at 4510.75 on Tuesday’s 9:30 open. It up-ticked to 4511.50, then traded straight down and hit 4483.25 at 10:15. From there, the ES bounced 10 points, then traded down to 4482 at 11:05. While the ES did not trade straight up from there, that was the low for the day.

I know I usually do a more prolonged recap, but Tuesday was pretty simple. After the 4482 low, the ES would rally 10-15 points, then give about half of those gains back, then rally 10-15 points and so forth. It was a very steady trend for most of the session. It traded 4519.75 as the 3:50 cash imbalance showed $558 million to buy, traded up to 4522.25 and traded 4517.25 at 4:00. The ES settled at 4517.25 on the 5:00 futures close, down 19.25 points or 0.42% but up 36.50 points off the low.

In the end, the day’s trade fit the “3 parts to the day” rule: down on Globex, sell off after the 9:30 open until about 12:00 and then rallied during the third part of the day. In terms of the ES’s overall tone, it was weak but had a good bounce. In terms of the day’s overall trade, volume was on the high side: 297k ES traded on Globex and 1.33 million contracts traded for a grand total of 1.63 million contracts.

Technical Edge

It paid not to panic and freak out yesterday. While the S&P violated last week’s low, that mark was eventually regained and we rallied into the close. Down five of the last six and the bullish momentum has fizzled in the short term.

Yesterday’s pop in bonds is something to watch. The rally let us trim ½ our long position, but if we can continue to get a dip in yields, perhaps there’s a little more juice in bonds (and potentially stocks as well).

SPY

I would really like to see a back-test of the $443-44 area, along with a test of the 10-week ema and possibly the 50-day sma. That would be healthy price action and give bulls a juicy R/R.

On the flip side, keep an eye on the $451 to $451.50 area. That was prior support and has been stiff resistance for the last four sessions. A close back above the 10-day and 21-day moving averages (and thus $451.50) could open the door to $453, then $455.50 (gap fill).

S&P 500 — ES Futures

Guest Post

Topic: Taylor Three-Day Cycle

Author: David D Dube’

Website: https://polaristradinggroup.com/

Prior Session was Cycle Day 3 (CD3): AM Session selling drove price down to CD3 Violation and Range Projection Levels (4485) where responsive bids entered the market and absorbed the supply. Once sellers were “cleaned-up”, initiative buyers took control for the remainder of the session, closing price near highs of the day. Prior range was 59 handles on 1.630M contracts exchanged.

…Transition from Cycle Day 3 to Cycle Day 1

This leads us into Cycle Day 1 (CD1): Having closed near the high of the prior day, bullish momentum may carry price further before the next decline begins. When it does, the Average Decline for CD1 measures 4506 handle. Price is currently near the 5-day Point of Control (POC) balance. As such, scenarios to consider for today’s trading.

Bull Scenario: Price sustains a bid above 4520, initially targets 4530 – 4535 zone.

Bear Scenario: Price sustains an offer below 4520, initially targets 4510 – 4505 zone.

PVA High Edge = 4509 PVA Low Edge = 4485 Prior POC = 4488

*****The 3 Day Cycle has a 91% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history.

For more detailed information for both bullish and bearish projected targets, please visit: PTG 3 Day Cycle and/or reference the Cycle Spreadsheet below:

Link to access full Cycle Spreadsheet > > Cycle Day 1 (CD1)

Thanks for reading,

PTGDavid

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!