*UK’s PM Truss resigns, making her tenure as PM the shortest in Britain’s history

*UK CPI hits 40yr High at 10.1%

*Goldman Sachs CEO Solomon “there’s a good chance we’ll have a recession”

*China’s top military brass vows to be on “high alert” and ready for war amid mounting tensions with the US. 

SP500 +4.80% w/w

Nasdaq +5.72% w/w

FTSE 100 +1.82% w/w

Oil -0.22% w/w

RBOB -6.59% w/w

Nat Gas -15.11% w/w

Gold +0.66% w/w

Silver +6.50% w/w

Copper +1.75% w/w

Cocoa -3.11%

Coffee -3.97%

Sugar -2.44%

Stocks:  Let me first lead off by saying, I think it’s entirely reasonable to think that we’ve seen “the lows” over the near to intermediate term in markets.  The near-term cycle is configured positively.  Let me also say that I’m in no way interested in participating long of stock here, but will consider other markets for long side trades.  What leads me to believe all of this is the reversal move we saw on 10/17 to the upside, but further validated by the “up move” on Friday.  If you’re a “technical trader”, you’ve every reason to believe that the near-term path is higher.  Now, I still think you can still trade this set-up on OB/top of the range signals on the short side.  I’m in no way convinced, nor do I have any reason to believe (outside of a massive Fed pivot) that we’ve seen the bottom in markets, but I’m open to the idea of a bear market rally similar in nature to the June/July rally just a few months ago. 

Furthermore, the Fed’s blinding announcement via the WSJ leak on Friday (moments after I dropped my market note) about them perhaps slowing the pace of rate hikes, coupled with clear currency intervention by the BOJ (buying Yen, selling dollars) was no coincidence, and was done deliberately to convey a message to market participants.  There has also been rumors of a pause of QT in November and even “backdoor QE” via the balance sheets of member bank organizations.  I have also heard/read of Goldman Sachs, Morgan Stanley, and Cantor Fitzgerald suggesting a November melt-up could ensue.  What I’m saying here is while I’m still BEARISH overall, I’m paying attention to sentiment (which has been unbelievable bearish), and the little “winks and nods” the Fed may be trying to convey via the WSJ leak on Friday.   And of course how could I not mention that Mega Cap Tech earnings kick off this week, with MSFT, AAPL, GOOG, and AMZN all set to report.  While I’ve no “solid” outlook for Q3 earnings and Tech, we don’t think they’ll be great, nor will they be horrific, I think the highest probability is that we get a mixed bag of results. 

Gold:  What happened on Friday to Gold is what you’d call a “stick save” by an NHL goalie.  Gold broke key support (albeit briefly and by a small margin) of 1622, and following the WSJ Fed leak reversed higher by more than $42.00 on Friday.  Gold remains BEARISH trend here, but similar to stocks, if you’re a technical trader you could might be long Gold now for a near-term trade with a stop below 1621 (Friday’s lows).   Gold remains BEARISH trend, Negative momentum, and immediate OB reading of 85. 

US Dollar:  With the aforementioned, could it be that we’ll see the US Dollar bull market take a breather?  While I ultimately believe the USD is likely to continue higher over the next several months, I do see a reasonable argument that can be made for the USD to decline over the next few weeks.  If the Fed is indeed looking to slow its rate hike pace, on the margin that is slightly bearish for the USD over the near-term. 

If the above proves to be correct….

Here’s the rub… A stronger stock market and weaker USD simply begets … *drumroll* … higher commodity prices and more inflation. 

Oil/Energy Policy:  Oil and Gasoline prices fell modestly last week following some news of the potential for more SPR taps in the future, as well as the probabilities of demand destruction from economic hardships.  Furthermore, China announced an extension of lockdowns last week of more than 280M of its citizens.  While most of the world has moved on from Covid-19, China continues to shake its iron fist.  It has gotten to the point that some are speculating (I’m in this camp as well), that it is largely a tactic to contain inflation via forced demand destruction.  However, when China finally decides it’s time to lift those self-imposed lockdowns (and they will) at that point we may be on the precipice of seeing some very interesting prices in Oil.  While China has their own ridiculous ways of containing inflation and high energy costs, it seems as if the USA has her own way’s as well.  The Biden Administrations energy policy has gotten to the point of down right incoherency.  We’ve tapped 180M bbls of the SPR’s that hold a total of 700M bbls.  Doing simple math, that leaves us with roughly 520M bbls, and its even been reported that they could be as low at 405M bbls.  Our daily usage of Oil is around 18M bbls/day, which as you can see leaves us with approx. 28 days-worth of demand (at the higher estimate) which means we’re at the lowest level in 40yrs in the SPR.  Now of course we produce our own Oil daily and import as well, but it goes without saying that this is a most dangerous game of chicken we’re playing with energy reserves and geopolitics.   The Biden Administration has also suggested that while they are urging US Oil producers to “produce more over the near-term”, that statement is usually followed up by saying “but we’re going to shut down the US Oil industry as soon as possible”.  In general, that’s not good business practice.  Hey Exxon and Chevron “invest more money into producing Oil now, but we’re going to shut you down as soon as we have the chance”.  When Oil companies commit new capital expenditures to drill new wells, its with the intention that those wells will produce oil (and profits) for the next 20-30 years!  So you can see the dilemma here, and why US Big Oil doesn’t necessarily want to commit the CAPEX.  That’d be like your boss telling you to perform a company-wide financial audit, and then at the same time telling you that you’ll be fired shortly thereafter.  And of course with all that said, we didn’t once mention OPEC and there likelihood of potentially cutting production even further in future meetings.  Maybe more on that next week! 

That’s all we’ve got for you headed into the week!  If you’ve any questions please reach out directly. 

All the best, -JC


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.

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John Caruso

Senior Market Strategist
Follow John on Twitter @JCarusoRJO. John began his career at Wilshire Quinn Capital, a Wealth Management Firm based out of Los Angeles, California. John made his move to the commodity industry at the end of 2005, and began his path at Lind Waldock, at the time the largest retail brokerage division worldwide. John did his undergraduate work at Robert Morris University in Pennsylvania from 1999-2003, where he was a 4 year varsity basketball letterman.  A self-professed “Macro Trader”, John uses a multi-factor fundamental and “quantamental” trading model in distinguishing market cycles based upon the accelerations or decelerations of growth and inflation metrics. His technical and quantitative approach is heavily reliant upon trend and market range analysis via a custom built standard deviation system in helping him make probability-based market decisions. John is an avid reader of all things pertaining to finance, and behavioral economics. Click here to sign-up for John Caruso's Trading Coach Insights. Daily information and insight on all futures marketsin ranging from metals to equities.
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