Highlights – Tuesday:

• The options market prices a volatile 100-point range (3874.50-3974.5) for Tuesday. If the price is retracing or consolidating, trading can be choppy, and it might pay to trade outside in from the developing Value Area High and Low into the highest volume node (Point of Control or POC). It takes time for such responsive trading ranges to set up, so I plan to be patient after the NYSE open tomorrow. Overnight inventory is net long at this writing, so Globex traders may fade the open to unload profitable overnight inventory.
• I am watching the rising trendlines from the March 2020 China Virus crash and June 17 lows. Each line could provide some temporary support. The lines are easy to forget when I am in the weeds and trading down on a 5-minute chart..
• I am also paying attention to the support and resistance clusters drawn on the first chart above for pauses and reversals. I am especially watching price reactions at the five and 50-day lines. I will use Thursday’s (9/1) candle as a potential breakout range for the very short term.
• All other Key Levels are listed in the table above, except for the levels that aren’t available until the morning.

Global Contagion – Europe Teetering on the Edge:

• On Friday, G7 nations announced they had devised a worldwide scheme to impose price caps on Russian oil. (JP Morgan believes $380 Oil Possible If Russia Retaliates).

• Russia has now retaliated. Here is the sequence of events that have transpired:

  •  FRIDAY: Russia will not sell oil to any country abiding by the price caps.

  • SATURDAY: Russia cut off all Natural Gas flows to the EU, openly declaring the cutoff as retaliation for sanctions and weaponizing the gas flows. Putin said there would be no more gas until the West removes sanctions.

  • MONDAY: OPEC plus announced it would reduce oil production by 100,000 barrels per day in a warning shot across the bow. “The 100k cut won’t impact physical volumes to the market, but it signals that OPEC plus is serious about cuts.

  • MONDAY: Europe announced it might suspend trading in power derivatives which is the equivalent of banning short sales in stocks. But this is much worse. The move is tantamount to destroying operating and financial leverage in a $2 trillion economy leveraged on top of less than $20 billion in Natural Gas. Industry players will refuse deals due to the inability to honor contractual promises. If Europe goes forward with the proposal, it is depression-type deleveraging for the EU.

  • MONDAY: Europe will create lines of credit and ease credit requirements for operations to continue running. The West in general (and Europe in particular) must do the only thing they can in a commodity crisis, attempt to financially paper it over as long as they can until securing supplies. The papering is inflation morphing into hyperinflation.
  • MONDAY: Rationing is back on the table again.
  • MONDAY: Crude Oil Futures are up nearly 3% over Friday’s close.
  • More headlines are coming out by the hour, but these are the material contagion points so far that affect all of us. This is a very dynamic situation. For a more comprehensive explanation, read: As Europe Implodes, It Plans “Radical Intervention…” 

A.F. Thornton