ANDREAS STENO LARSEN: Good afternoon, everyone. And welcome to the Real Vision Daily Briefing. I'm Andreas Steno Larsen, the senior editor at Real Vision. And I'm sending to you live from Copenhagen, Denmark on the 12th of July. We are standing at crossroads in energy markets with extremely important support levels coming up just south of current spot levels in, for example, the oil market. And I think no one's better at unpacking the price action in namely the energy market than my guest for the hour, Tony Greer, the editor of the Morning Navigator. Tony, it's great to have you back on the show. How are you?
TONY GREER: I'm great, Andreas. How are you doing?
ANDREAS STENO LARSEN: Good, good. Tony let's start by unpacking today's price action across assets. We've seen that in another big sell off in the oil price alongside with commodities in general, but also a very strong US dollar in foreign exchange. What do you make of the price action?
TONY GREER: Yeah. It feels to me, Andreas, like the strong dollar tanking the Euro toward par is really weighing on, first of all, base metals complex, which is then weighing on the rest of the commodity complex as markets now go from pricing in inflation to stagflation to recession. And I'd almost argue that we're pricing into depression in a corporate couple of spaces in the commodity space.
But what we're seeing today is we've seen a big pullback in that great rotation, where we're looking for natural resources to rally over technology. And we're seeing just a little shade of that today. While they're getting to the commodity space with two sigma flops all over the place. There's two sigma pullbacks in palladium, corn, Brent crude oil, WTI, soybeans, the Bloomberg commodities index and copper today. To me, that's the whole world positioning for recession.
And it feels to me, it agrees with the vibe that I got over the weekend where everything I was consuming over the weekend was like, there's a recession coming. It was pretty much getting baked into the media, baked in as fact, and it may very well be the fact. And then I think it feels portfolio managers came in Monday morning and said, okay, you know what? Price the book for-- pivot the book to recession. And let's just get it on the tape.
So, in the first two days of this week, we've got two huge ticket extremes on the downside and the equity markets. Prints over 1500 on the negative side, like 1500 yesterday, 1700 something today. So, they're definitely wailing away at markets. And I'm really intrigued by this pullback in WTI. That seems like a lot of short selling. We've proven the commitment of traders shows, the managed futures report showed that there's not a lot of length in WTI futures.
They showed that there is a massive short rather in equity futures. So, I've got a little mental bullseye on that position right now. And today, they also managed to get to some old technology, which as we know, has been under pressure with the Twitter deal falling apart, etc. And I believe I don't want to go into much, much detail there. But it obviously gave tech a black eye on Monday morning. And we're seeing a little bit of follow through with two sigma fallbacks in Microsoft, the software sector and cybersecurity today.
If they're getting to everything today or almost everything, they've got the S&P pulled back to around 3800. We're somewhere now in this range between the moving averages and the recent low. So, definitely in danger but it feels like a lot of forced selling, a lot of late selling down here. If I could add just one thing, Andreas, standing up on the day are sectors that have already been washed out.
Airlines are up 4%. They've already been washed out. Cannabis is up 4%. God knows that sector has already been washed out. But I get encouraged because homebuilders are up on the day-to-day, a day where we've got interest rates pinned to the highs probably ahead of CPI tomorrow. And we've got metals and mining of all sectors up 60 basis points on the day with a two sigma slide in copper.
So, that just tells me that those metal stocks, they're into huge technical support. It tells me that the stocks may be washed out and already priced for that recession. And so, we're just going to weigh out this week, how much more there is to go. There's some data coming up in oil at the end of the week. We've got CPI coming out tomorrow. So, these first few days have just been the opening salvo of the week for me if that's fair, Andreas.
ANDREAS STENO LARSEN: Yeah, it's quite a tricky market these days, to be honest. But I wanted to ask you, Tony, about the oil price because oil is down 8% one day, then up 5% the day off, and then down, say 8% again today. What are your thoughts on this market volatility? And what would it take for you not to buy the dip?
TONY GREER: Good question. A very, very well posed question. I think that a lot of the volatility is the oil market didn't stop anywhere that made sense just yet on the downside. So, we've did this retracement up to moving average resistance, and came in after a weekend when everybody's like, oh, we're going to do the depression thing this week. They go ahead and put pressure on oil again. It feels to me like they are massive shorts just piling on and adding at bad prices into support here.
As you know, we have the 200-day moving average below at 95.25. And I have to say the only thing, Andreas, that would get me to not buy the dip is a pivot in our batshit crazy policy stance toward energy. Because I'm still seeing unbelievable, unbelievable propaganda and misdirection on television. I saw a clip today where Mark Haines is asking someone in Biden's Energy Department, if there would ever be any give on any of their policy in terms of drilling on public lands, starting up pipeline operations, to try to provide some relief for the gasoline price.
And the gentleman in the Biden Energy Department came out and said, well, this is all false narrative, that the oil companies aren't drilling on the leases that they have. So, they're really just squeezing the market for profits right now. As long as the administration continues to tell this lie about what's affecting oil prices, and throwing shade away from the direction that it has a lot to do with the present state of inflation, and the pivot to green energy and ESG, etc., to stay in line with the world economic foundation principles, it seems like people are really forcing it on the downside here.
Then my most interesting tell today, the oil market is with the $10 slide in the last two days in crude oil, the front month diesel spread has expanded by 30%. Normally, and I'm sure you've seen this before, Andreas, when we have serious sell offs in the crude oil market, structure always goes with it. The calendar always gives way when front month backs off this much. And in WTI crude oil, we've seen a pullback in front month spreads, but we're still wildly elevated levels. We're talking about $2.5, $3 per month we spread, which is insanely backwardated.
And we're talking about diesel fuel, where we know we've got a shortage of refined products, where the spread is actually widening as the price is going down, reflecting the tightness in that markets. That to me is one of the tells that the oil markets showing me that saying, don't really get too excited about selling this dip into the 200-day moving average, rather be prepared. And I'm not going to say that I'm going to stand there and own crude oil at the 200-day, but I'm going to definitely shop around for some energy related assets that are on their back in the last couple of weeks looking to buy them cheap, and looking for them to make higher lows.
Because what the dynamic that I'm seeing now is that everything technology is crawling over toward its old low in firm bear market territory. And everything in the natural resources space has pulled back into massive support in secular uptrend. So, those are the trades that I'm hunting right now, Andreas.
ANDREAS STENO LARSEN: Yep. Makes a lot of sense, Tony. Can I ask you to try and explain this divergence between the diesel spread and the development in crude oil? Could it be linked to a strong dollar? What's your explanation?
TONY GREER: I'm sorry? Could it be?
ANDREAS STENO LARSEN: Could it be linked to a strong US dollar? Or what's the explanation?
TONY GREER: I think you could link the weakness in the WTI and the oil market spot price to weaken the dollar strength because certainly Euro losses and sell off of this magnitude to this important of a tech psychological level, 1.00. We get through there and all bets are off and what could happen. There could be a much steeper base metal slide. There could be a steeper commodity slide along with it.
I'm prepared to trade out of that dip, really with the best risk reward principles and tactics that I can because I still think that it's a fat pitch given where spreads are and how tight the calendar is, and how much of a shortage we have in diesel spreads. And if you notice, by the way, gasoline at the pump hasn't yet, no move yet, no change so far. So, really where the rubber hits the road where it matters, where the consumer hits the gas station, he's not getting any relief. So, the price of oil backing off from 130 to 95 is nice, hasn't changed anything in the gasoline markets.
ANDREAS STENO LARSEN: I suppose that we should expect another high print in the inflation report tomorrow, given what you just stated on the gasoline price, Tony.
TONY GREER: I tell you. I don't see how it comes out any other way, Andreas. And I'm also keyed up on the fact that I tweeted it out before, like the 12 investment banks on the street, their research department are two ticks apart on the CPI expectation. Their range is literally, I think, 8.6 to 8.8. And all 12 banks are right in line with consensus. That tells me that there's a higher probability that we see an out of consensus number.
I would not be shocked at an upside surprise, with gasoline prices so much higher for so much longer. I don't know where the relief would have come from if we were to see a pullback and CPI on this particular month reading, because the pullback in the commodities index certainly isn't going to filter out to finish products by the next month reading or even in the next month. I'm still expecting that to be an elevated number. I could totally see the way the bond market has been trading.
I'm long some Treasurys now and wildly uncomfortable, even though I'm only a couple percent out of the money. And I'm only uncomfortable because the price action still stinks. They're down 20% on the year and there is no respite. Look at 2 Year yields are pinned going to 310. Again, I feel like they're waiting to see a 10% CPI number of bond dislocation lower, higher yields, and then the last gasp lower in the stock and commodity markets. Then we'll be able to see maybe some red to green days from there. [?] from there, that's right.
ANDREAS STENO LARSEN: Sure. I wanted to play a soundbite for you in relation to the debate on the important support levels in the crude oil price. It's from a discussion between Raoul Pal and Julian Brigden in the insider talks for July 2022. So, let's have a listen to that soundbite and get back to the discussion on the oil price.
RAOULPAL: Two of my favorites. For me, the other thing to leave people is watch this $95 level in oil. I think if that breaks, there is a big flush to come. You can see how passionate people are about oil positions. I know a lot of people got and just be very careful.
JULIAN BRIGDEN: Be very careful in anything, because if finally, we are getting into the quickening where everything just been--
RAOULPAL: Quickening is the right term.
JULIAN BRIGDEN: If you've got absolute shit [?].
RAOULPAL: It's pouring down the funnel like that.
JULIAN BRIGDEN: Yeah. You don't need to be a hero in this environment.
ANDREAS STENO LARSEN: The Insider Talks will be available for our pro tier subscribers at the Real Vision platform from today. Back to you, Tony. Raoul Pal points to this 95 level as an amazingly important support level in the oil price. Do you concur with that view?
TONY GREER: I do. I do. I think I've got the 200-day just above there at 95.20, give or take. We're going to trade through the levels by a few pennies or a few nickels and dimes. That's not-- the big picture is what matters in if there is that quickening, that Julian and Raoul are maybe talking about, maybe anticipating a little bit. I certainly don't like to fade a century's worth of macro trading experience right there. So, when those guys are on guard, I'm on guard.
And they're very much right in terms of tactical trading and asset performance. I wrote the other day that the longer your money is treated poorly, the better the chance that it's going to go really wrong from there. And that's just the feeling that I get with some trades that I put on, and some investments that I've made, and you get the feeling of how they go by the price action. And that to speak to what Raoul and Julian are talking about, we are at that derisking phase in the markets where nobody would be shocked if somebody blew up this week.
And we came in tomorrow and all of a sudden it was, whoa, there's another $5 in oil. Whoa, there's another 100 S&P points. So, these are the markets that you have to be sitting on the edge of your seat for at all times managing your risk and making sure you've got it backed up against some illogical support line. So, I do agree with Raoul. I agree with Julian, that man it is definitely looking dangerous out there. But I'm going to stand in and go ahead and try to trade out of this opportunity that the natural resources space is presenting me.
ANDREAS STENO LARSEN: Yeah. You mentioned earlier that the risk of a recession could be a driver of the price action that we see commodity space. And in relation to that particular debate, we had fresh numbers out of the NFIB survey earlier today. So, expectations among small companies in the US hitting an all-time low. What do you make of the risk of a recession when you see numbers like that, Tony?
TONY GREER: It feels like-- to me, it just coincides with the President's approval rate falling. I'm just looking at it from the energy side, really, and try not to get too geopolitical here. But the American citizen is dealing with all this inflation. They're getting wise as to what's been causing it. They can go and dig into any financial publication and start understanding that the Fed easing, the Fed balance sheet, all these things over the years have contributed to the inflation that we're seeing now.
I think that the misdirection that comes out of the government and the media, while there are massive protests going on around the world, and a complete collapse in Sri Lanka, I think that detracts from their credibility. And I think that that obviously has an effect on the small business owner and the consumer. They're the tip of the spear of the economy, and they're going to feel every bit of crunch and every percentage point that's not measured by CPI.
And so that's where a lot of the bite of this inflation is. And with [?] I feel the constant misdirection and blame being cast outside of the White House and outside of US, I don't see how that gives you confidence to run a business here.
ANDREAS STENO LARSEN: [?] agreed, Tony. By the way, the White House said today that they foresee a very high inflation report coming out tomorrow. They obviously know the number already. But they also tried to pitch the story that the numbers are already outdated. Should we get this very elevated number tomorrow? How do you think markets will react to it?
TONY GREER: Well, if I had to make a guess, Andreas. Like I said before, I'd love to see the volatility of a bombed out CPI number like a 10% or 11%. Just to really shake the markets up and say, okay, if we're going into a recession, and we've got 10% inflation, what does that mean for commodities? Does that mean commodities are likely to back off from here? Or does that mean that commodities are likely to hold their ground? I don't know.
But I would bet on the commodities are telling the story of the inflation, and I would like to buy the dip. That's how I'm looking at it. I don't think that we're in the 9th inning or anything like that, of where PPI or CPI is going to on the upside. I don't think we're in the last inning of seeing the highs in gasoline prices just yet. With all of that left to play out with Biden headed to the Middle East this week, I think that the oil market might be perceiving that he's going to come away with a victory that I don't think he's going to come away with.
So, that to me is even probably encouraging more selling into this hole and given me more confidence that the tailwind is still to the upside when diesel spreads are blowing out right into a nosedive in the WTI market.
ANDREAS STENO LARSEN: Yeah, that is a really interesting observation. If we look at risk assets or equities, given high inflation print tomorrow at firm, Federal Reserve, when it comes to the interest rate policy, what do you make of the overall price action and the S&P 500 in relation to that?
TONY GREER: They're going to crack your heart man, right?
ANDREAS STENO LARSEN: Yeah.
TONY GREER: I sent over that chart today with the SPX is pulled back to roughly the 38% fireboat retracement. And I don't look for those levels to really-- I just look for those levels as a guide to the damage of certain moves, not as necessarily a level that I'm going to go in and buy. If I saw it back off to that Fibonacci level that was also lined up with a trendline and a moving average, I get a little bit more excited.
But all we are as we fall in, we've given back 38% of the lockdown rally. It may hold in and around here, but I'm going to tell you, if we do come out with a worse inflation number, I would imagine that we're going to see another day or two of selling in the S&P. A lot of selling in technology, possibly predating higher yields. And I would not be optimistic about the close on Friday, if we get