Is Oil Trying to Break Higher? | With Dale Pinkert

Episode Overview

• Dale Pinkert explores the counter-intuitive market mechanics of geopolitical conflict, explaining why asset prices often peak right when "kinetic events" begin rather than collapsing.
• The discussion identifies critical macro risks, specifically how an oil price shock breaking $78 or a Japanese Yen "carry trade" unwind could act as the catalyst for a recession or liquidity crisis.
• Pinkert analyzes technical exhaustion across major assets, arguing for a rotation out of overextended metals like Silver and into "embryonic" trades like Oil and the US Dollar.
• The episode draws historical parallels to the 1987 crash, warning that current market resilience in the face of rising bond yields may actually be a signal of dangerous "disintermediation" before a snapback.

Key Concepts

• The "Sell the Fact" Dynamic in Geopolitics Markets typically "climb a wall of worry" during the buildup to a conflict, driving prices up on speculation. However, Pinkert explains that once the "kinetic event" (actual bombing or war) begins, the uncertainty is removed. Traders often "sell the fact," causing prices to drop despite the bad news, trapping retail investors who react emotionally to headlines.

• The "Toxic Brew" of Carry Trade Unwinding A systemic liquidity risk exists involving the "Carry Trade" (borrowing cheap Yen to buy high-yield assets). The danger scenario is a simultaneous rally in the US Dollar (due to rising yields) and strengthening of the Yen. This creates a liquidity squeeze that forces leveraged traders to liquidate risk assets rapidly to cover loans, similar to the volatility seen in August 2024.

• Disintermediation and the 1987 Parallel Pinkert challenges the bullish view that stocks rising alongside bond yields is a sign of economic strength. He classifies this as "disintermediation"—where capital bypasses traditional banking structures. Drawing a parallel to 1987, he warns that markets can ignore rising borrowing costs for a long time until they suddenly "snap," leading to a rapid correction where bonds only become a safe haven after equities break.

• Technical Exhaustion vs. Embryonic Trades The episode teaches how to use Fibonacci extensions (specifically the 1.618 level) to identify when a trend is "parabolic" and unsustainable. Pinkert contrasts "exhausted" trades (like Silver hitting its extension) with "embryonic" trades (like Oil, where geopolitical risk is not yet priced in), advocating for rotating capital from the former to the latter.

• Intermarket Divergence Traders should look for divergences between related assets to spot economic truth. For example, while Silver has been strong, Copper ("Dr. Copper") is showing a bearish technical pattern. This divergence suggests potential economic weakness that the headline stock market indices are ignoring.

Quotes

• At 0:12 - "Sell silver, buy oil." - Summarizing the core rotation strategy of moving capital from an overextended asset to an undervalued one.
• At 13:46 - "Markets will peak on the actual bombing. It'll climb the wall of worry... rallying very strongly... and they open it higher and then they sell into it." - Explaining the counter-intuitive mechanic where markets sell off once a feared war actually begins.
• At 15:37 - "Almost every recession starts with an oil shock." - Identifying the historical macro-economic trigger that connects supply constraints to broader economic downturns.
• At 18:31 - "It's a pretty toxic brew if you have a Dollar rally... and you have the Yen strengthening at the same time... because those are the two most popular carry trades." - Identifying the specific currency mechanism that could cause a systemic liquidity shock and wipe out leverage.
• At 25:15 - "This is disintermediation... it happened in '87 too where the market kept going up while yields were going up. And then when the market snapped, then the bonds had a monster rally." - Challenging the narrative that rising yields are fine for stocks and suggesting the environment is a setup for a crash.
• At 29:35 - "I'm a believer in being short the weakness and long the strength... Among the metals, Copper is the most bearish weekly pattern for me." - Illustrating the strategy of trading relative strength rather than treating all commodities as a single basket.

Takeaways

• Monitor the $78 Level on WTI Crude: Treat this price point as a critical recessionary trigger; if geopolitical tensions push oil above this level, it acts as a global tax that could end the economic expansion.
• Watch USD/JPY 140 for Systemic Risk: Use the 140 level on the Yen pair as a "panic button" indicator; if the pair drops below this, anticipate a rapid unwind of the carry trade and initiate "risk-off" positioning.
• Rotate from Silver to Oil and Dollars: Respect technical exhaustion signals (Fibonacci 1.618) in Silver by taking profits, and reallocate into the US Dollar (expecting a DXY rally to 103-104) and Oil dips.
• Short Specific Weakness (China/Copper): Instead of shorting the broad market, target assets showing specific technical weakness and failed rallies, particularly Chinese tech (FXI/Alibaba) and Copper, which are diverging from the broader bull market.