Washing the Windows

It has been a few weeks since I wrote a post about the US equity markets and in large part that has been because while the short term patterns and setups are still important, and I’ve still been looking at those in detail in my daily premarket videos for subscribers, the background to this market, while generally ignored, has been becoming increasingly obvious and divergent from what we are watching on the surface.

I was talking to a friend about this yesterday and compared it to washing the windows on a house that was burning down. I said that as this happened the person washing the windows would either be unaware that the house is burning down, or didn’t yet see why that might be important. Only when that perception changed would he/she stop washing the windows.

Donald Trump signed the MOU with Iran at Versailles twenty nine days ago, and said then that he had to sign it as the world was three or four weeks away from a major economic crisis if the Strait of Hormuz was not reopened. I thought that assessment was reasonable. The peace lasted two or three weeks, a lot of oil cleared through the Strait, but not enough to change more than the timing of that major economic crisis. Since then the war resumed ten days ago, the Strait is closed again, and the war is escalating.

World oil stocks are at low levels not seen in decades, the US has started bombing civilian targets in Iran and Iran is starting in response to bomb civilian targets in the territory of US allies in the Gulf, who have themselves started to get more involved directly in this war. This is a huge powder keg, the fuse is lit, and the world economy is sitting on top of it. If Iran starts large scale attack on oil infrastructure in the Gulf or, worse, water infrastructure, that powder keg will explode, and the effect on the world economy may be devastating.

So I’m going to be looking at the surface of the markets while this continues, but also this background to this market that may at any point become much more prominent in market sentiment.

In terms of the surface of the markets I was writing in my last post on 12th June that I was looking for new highs on US equities and we saw those on IWM and DIA. We didn’t see those on SPX or QQQ, mainly because Tech has been lagging other US indices for several weeks now and dragged SPX down with it. That’s not because of the Iran War and may well continue and get worse. I would still very much like to see an all time high retest on SPX and on the daily chart SPX is holding up well and came within 40 handles of an all time high retest this week.

SPX daily chart:

The picture on QQQ is not encouraging though, with QQQ failing to hold above the daily middle band in recent weeks, though an overall bull flag may be forming here.

QQQ daily chart:

IWM has also lost the daily middle band in recent days, and has also broken down yesterday below the rising support from the late March low.

IWM daily chart:

I’ve been watching possible topping patterns on the hourly futures charts this week and overnight ES broke down from a high quality double top with a target in the 7430 area.

ES Sep 60min chart:

If this break down on ES is sustained today then I have two other topping patterns that I have been watching form on US indices this week.

The first of those is on RTY, where a good quality possible H&S has been forming that on a sustained break down would look for the 2820 area.

RTY Sep 60min chart:

The second of those is on YM, where a decent quality possible H&S has formed that on a sustained break down would look for the 50,500 area.

YM Sep 60min chart:

This is a fragile market, and if confidence cracks we could see a fast move downwards. Is today the day that starts? Possibly, we’ll see. Everyone have a great weekend. :-)

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Oil Targets and Resistance Levels

In my last post on Tuesday 7th July I was looking at the setup for a strong rally on Oil starting and at the time of writing today Brent Crude is up about $11 and West Texas Intermediate Crude (WTIC) is up about $8 since then. So what now?

On the daily chart the highs last week were at the daily middle bands on both, and in my The Bigger Picture webinar on Sunday I was talking about the importance of those middle bands being broken with confidence to open further upside. That was done yesterday, so today I’m looking at upside targets and resistance levels for this move.

On Brent Crude a decent quality IHS has broken up with a target in the 91.60 area. That looks credible as a target, though I would note that there is an area in the 89.50 to 90.00 range that was important on the way down. That could now be resistance. Above that there are significant broken support areas at 96 and 98/9.

BRENT 60min chart:

On the Brent Crude daily chart, price is currently over the daily 2sd upper band, with the 3sd upper band not far above at 89.18. The daily middle band is still turning up and the bands have not started expanding yet so I’m thinking that (subject to news), the 89 - 90 area may well hold as resistance this week. The daily RSI 5 buy signal I was looking at last week reached target and the weak RSI 14 buy signal fixed. There is no current negative divergence on the daily RSI 5.

BRENT daily chart:

On the WTIC hourly chart a decent quality IHS has broken up with a target in the 86.00 area. That looks credible as a target though I would note that there is an open breakaway gap area just above in the 82.20 to 83.00 area (the equivalent gap on Brent Crude was filled overnight), and an area in the 86.00 to 86.30 range that was important on the way down. Either of those could now be resistance.

WTIC 60min chart:

On the WTIC daily chart price is currently testing the daily 2sd upper band at 80.59, with the 3sd upper band currently at 84.36. The daily middle band is still starting to turn up and the bands have not started expanding yet so I’m thinking that (subject to news), the 84-5 area may well hold as resistance this week. The daily RSI 5 buy signal I was looking at last week reached target and the weak RSI 14 buy signal fixed. There is no current negative divergence on the daily RSI 5.

WTIC daily chart:

The last chart for today is the Heating Oil daily chart where is good quality bull flag formed from the March high and broke up this week. This flag has a target at a retest of the March high at 4.71.

HOIL daily chart:

There is an obvious caveat I need to make here, in that all of this is very subject to news, and if another peace process were to start seriously then that might send the oil markets down again. There is however no current sign of any peace process starting and both sides seem to be getting more entrenched into their positions.

Is there a disaster scenario here we should be aware of? Definitely if Iran are pushed to a stage where they felt desperate, and the Persian Gulf allies of the US were to look more directly involved in the war against Iran, rather than just hosting the bases of the US while the US and Israel wage war against Iran. I would note that this is increasingly the case with Bahrain, Kuwait and UAE directly and also Saudi Arabia against the Houthis. This might lead to Iran attacking oil and gas infrastructure in those countries, which would be very bad, or perhaps even their water desalinisation infrastructure, which could make much of the Middle East uninhabitable for an indefinite period. I am hoping that there are enough sane people on both sides to avoid this scenario.

If you like my analysis and would like to see more, please take a free subscription at my thebiggerpicture substack, where I publish these posts first and for members (from next week) also bi-weekly videos looking at equity indices, bonds, currencies and commodities. Those videos are posted on my Youtube channel after a seven day delay. Links to all my posts from my charting substacks are also always posted on my twitter.