Hey trader,
I don't enjoy sounding like a broken record. But I have to call it like I see it.
Liquid gold is running the show. Oil is absolutely dominating the tape right now, and it's doing it at the expense of everything else…Stocks, growth, tech.
All of it is getting drained so energy can keep ripping.
I have been pounding the table on this theme for weeks.
So today, we’re going to look at how this energy dominance ends.
Right now, the market is repricing everything in real time. But I think I’ve found the real buying opportunity underneath the chaos.
The Cure For High Prices is High Prices
Energy (XLE) is running the table against every other sector right now. It is the top performer across every major timeframe:
I cannot remember the last time I saw a clean sweep like that. As I explained last week, this kind of concentration benefits one group and one group only. The bears.
Capital is getting pulled from everywhere else to chase this trade. That is not healthy. It never lasts. I have watched these kinds of moves play out dozens of times over my career, and they always end the same way.
The market is now waking up to a painful reality. Inflation is going to wreak havoc on growth. After holding up nicely in recent weeks, growth sectors faced a barrage of liquidations last week. The repricing has been swift and ugly.
We went from pricing in three rate cuts to potentially dealing with rate hikes this year. The only real comparison I can find is what happened during the Gulf War in the early 1990s. Oil exploded higher. Stocks dumped. Markets violently repriced everything in a matter of weeks. That is exactly what is playing out right now.
But there is an old adage I keep coming back to. The cure for high prices is high prices.
The inflationary paradox is that it creates demand destruction. People lose spending power. They stop buying outside of necessities. This creates a cascading effect that slows the economy from the ground up. High inflation plus a slowing economy equals stagflation.
Even if the energy crisis gets resolved tomorrow, it will still take time for people to start spending confidently again. The damage is already being done at the gas pump and the grocery store. Consumer behavior lags the headlines. The economy is not going to grow as expected.
When Tech Comes Back to Life
Here is the part most traders are going to miss.
In a stagflationary environment, tech actually becomes attractive again. Growth stocks are always at their most compelling when things look the most bleak. Nobody wants them right now. That is where the opportunity lives.
We are almost at that point. The fear is loud. Positioning is bearish. Short interest is elevated across the board. These are the conditions that precede major turns. I have seen it too many times to ignore.
I am not calling the bottom today. I am saying the ingredients are forming. When energy finally rolls over and rate expectations stabilize, the capital that fled tech will come rushing back. That move will be fast. It will punish anyone who stayed short too long.
The perma-bears will tell you to keep selling. They will point to inflation data and oil prices and swear the sky is falling. These are the same people who have been calling for a crash for months and have nothing to show for it. They will be wrong at the worst possible time. They always are.
Positions matter more than opinions. Right now I am watching the energy trade for signs of exhaustion and building my buy list for what comes next.
When the Trinity Terminal confirms the turn, I will be ready to get aggressive on the long side.
Stay tuned,
Gianni Di Poce