The Inflation Trade Is Dead and the Fed Put Isn’t

In September of last year, during the correction we were having, I wrote an article titled “The Reflation Trade Isn’t Dead and Evergrande Isn’t Lehman.” I took a lot of flack for that, and yet, the S&P 500 went on to rally almost 9% further, and oil—a major point of discussion in my article—went on to rally almost 90% further. And furthermore, Evergrande’s demise has had no discernible impact on the global financial system.

I turned out to be right.

Now the talk is that inflation is going to destroy us all, so let me tell you why I do not think that is true.

As with the previous article, I want to involve energy. In the other article, I showed how oil was developing some very bullish structure. Presently, I now believe energy is in a very bearish configuration. That will not serve the “inflation will destroy us all” narrative. For this discussion, I will use $XLE.

Last summer, I came to interpret the large sideways structure as an expanding triangle “B-wave,” the central structure of a larger, 3-wave corrective pattern (the pink A-B-C you see below). I expected us to rally in the final leg of that structure, the big pink “C-Wave,” and we did.


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