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.

XLE

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


$XLE May Pull Back Soon

After hitting my last target noted here, I think $XLE may be ready for a correction soon, taking us as low as the orange box below in at least three waves.

XLE

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


$XLE Bullish Consolidation Breakout and Target

The little green bull flag’s measured move on $XLE is noted by the orange box above us:

XLE

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


The Big Bull Count for $XLE and Target

Commodities have been in a very long bear market, and those don’t last forever. If negative oil wasn’t a sign of a generational low, then I don’t know what else could be.

As with $OIL, $XLE has broken a multi-year down trend and seems to have tested it with support. This is a very bullish count (orange 1-2, green 1-2) but if it were a 1-2-3-4, then we would only expect nominal new highs followed by a relapse under the trend line.

That would be quite the fakeout, to break trend like that only to give it right back up (to the delight every deflationist out there) but I prefer trying to listen to it here. We may very well be entering a commodities bull market here, and it’s something that could last for many years. And it would start with a 1-2-1-2 pump breaking trend.

Here is the target for minor 3:

XLE


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.