Celebrating the Wrong Thing

As we noted yesterday, both here and with Members, Treasuries went the other way after both the hot CPI yesterday and then the red-hot PPI inflation readings this morning. Bulls have been celebrating what they view as an overdue rally in bonds, as rates finally come back down a bit.

However, the key issue is whether the bond market is actually looking through the hot inflation data and seeing a deep recession on the horizon, given this price action. 

Beyond that, even with a mixed session in equities today, the highly defensive healthcare and consumer staples (XLV and XLP ETFs, respectively) are gapping up hard yet again, which supports the rotation into recession-resistant sectors, within equities as an asset class. 

Against this backdrop we have crude oil continuing to act incredibly well, especially given all of the power players in D.C. pulling out all stops since March to keep the oil price down. My view is that crude has dazzled on all timeframes, especially the weekly and monthly charts, to the point where I strongly suspect a sharp rally for oil into the holidays would be the true "pain trade" for Wall Street. You will note oil is up nicely today even as gasoline comes in a bit, as well as oil stocks in the major XLE OIH XOP ETFs. 

And lest we forget: The naughty natural gas continues to firm up as winter inevitably comes due in a few months. Natty survived this morning's weekly inventory report without a nasty rollover. On the UNG ETF daily chart, below, the ETF keeps holding $10.75/$10.80 as possible new support.