1. Oil Loses Its War Premium and Tests a Key Level
Oil prices continue to decline. WTI and Brent currently trading at their 200-day moving average. Brent is below $93, while WTI is at $86. A lot of the war premium is leaving the oil market this morning.
We got a headline saying Iran has apparently dropped its demand to control the Strait of Hormuz and collect transit fees from vessels. This is giving the oil market some hope.
But at the same time, there’s also news about drone attacks, ships burning, and so on. We can’t stress this enough: the oil market is reacting to headlines. If the headlines turn bad, oil will start going back up.
We’re keeping a close watch on the 200-day moving average. If that breaks, there could be further declines in oil prices. Looking at the chart alone, if WTI trades lower, the next support level is around $80, then $77. Below that, we’re looking at around $67.50.
2. Gold Defends $4,000 as Silver Struggles
Gold has been rallying and is currently trading a little above $4,100.
$4,150 acted as a major resistance level a few days ago, and we’ll be watching it closely.
On the downside, keep in mind that $4,000 remains a big level. Gold tested it and bounced in a big way, which makes us think there are still buyers there and that the level is being defended very strongly.
On the upside, gold has some fighting to do at $4,200, then above that at $4,500. If that breaks, we’re looking at $4,700. Gold would have to cross those levels to see a much bigger upside.
The silver chart remains in bad shape. Silver did try to move up but couldn’t find many buyers. It’s currently at $52.56. The $53 to $55 range is a big level it needs to cross before we get any direction.
3. Inflation Week: CPI Tomorrow, PPI Friday
Tomorrow, we get U.S. CPI, the consumer inflation data. It will be interesting to see how it looks. Keep in mind, oil prices have been causing fears of rising inflation.
Then, on Friday, we get U.S. PPI, which measures inflation at the producer level. Over the past month, inflation at producer level has been volatile. One would assume that as producer prices increase, producers will try to pass those costs on to customers.
We already know the Federal Reserve has raised interest rates. Looking at the odds of a rate hike in December, they currently sit at a little over 80%. The market is pretty convinced there’s a rate hike coming in December.
4. Tech Drags While Defensives Catch a Bid
Last Thursday, we had a massive move to the downside in the major indices, primarily driven by tech. On Friday, we got some relief, but the market wasn’t able to hold its gains throughout the day. This morning, we’re seeing a move to the upside, but keep in mind, tech remains in focus.
There’s a lot of news around AI, NVIDIA, and so on. We’ll see if the gains hold.
These tech stocks carry massive weight in the indices, so as they come down, the indices start to look bad. But if you look at other sectors, like staples and healthcare, they’re catching a bid. It almost seems like there’s a lot of defensive positioning happening.
We’re tracking all of this, and we warned about it a while back: nothing has to go wrong, even just profit-taking could make everything look bad.
Just so you know, only 33% of Nasdaq stocks are trading above their 200-day moving average.
5. Bitcoin Breaks $76,000, The Loonie, The Budget & Market Temperature
Bitcoin has, at least for the moment, broken below the $76,000 level. It’s currently sitting right around its 200-day moving average. If that breaks, things could look a lot uglier for the cryptocurrency.
The U.S. dollar index is cooling off a little but remains above 100. 102.5 is the level we’re watching closely.
The Canadian dollar is declining against the U.S. dollar, as we’ve warned for a while that the Canadian dollar chart looks relatively bearish. There’s a downtrend, and it remains intact; it hasn’t been broken yet.
The Canadian budget came out last week, and there’s been a lot of noise about it. It primarily seems to be a business-friendly budget, which fits with what Canada is trying to do by bringing in investment and diversifying its trade partners.
Lastly, the VIX remains above 20 (at the time of writing). It bounced as high as 28 last Thursday. We look at the VIX as the market’s temperature. Above 20 means the market has a fever. Above 30 means the fever is high. In the 40 to 50 range, the fever is getting out of control. Above 50 and 60, life support is needed.