Crisis? What Crisis?

In my post on 23rd April on my The Bigger Picture substack I was looking at why in my view the Iran War was, and is, largely irrelevant in the context of the economic shock being created by the closure of the Strait of Hormuz. The Strait has now been closed for almost ten weeks, and seems very likely to be closed for at least another three weeks. I’ll be writing a follow up post tomorrow about oil, and the oil shock that I’m expecting to become very important when the oil and equity markets come out of their current wishful thinking daze in one to three weeks. If you’d like to see that, it will be published on my The Bigger Picture substack and at theslopeofhope.com.

In my post on 28th April I was talking about the brewing oil crisis as well but noting that when SPX made a new all time high on 19th February 2020, well after it was so obvious that COVID-19 was going to be a big problem that panic hoarders had caused a worldwide shortage of toilet paper, it reached a major resistance trendline and I was speculating that we might see that again here, giving an ambitious trendline target 200 handles higher in the 7360 area.

That trendline is rising of course, and is now in the 7385-7400 area, with SPX at 7365 at the close tonight. It would not be unusual to go a bit higher than that in a bearish overthrow before this move tops out.

SPX weekly chart:

I’ve been talking for the last couple of weeks in my daily premarket webinars and bi-weekly The Bigger Picture webinars about having a continued long bias on equities because decent quality patterns had not yet formed on SPX or QQQ from the late March low. These webinars are all posted on my YouTube channel of course. When the pattern looks incomplete on SPX in particular it usually means that the move has further to go and so it has proved here.

That has now been fixed on SPX with a clear rising channel established from the late March low. These often evolve into rising wedges and I have drawn the most likely three possible wedge resistance trendline options on the chart below. The best match with the trendline on the weekly chart would be the lower trendline, currently in the 7390 area, and the highest quality option would be the middle dotted trendline, currently in the 7425 area.

SPX 15min chart:

On QQQ I mistakenly said on 28th April that the target trendline was in the 680 area. It was in fact in the 690 area and was hit this afternoon in the 695 area. As with SPX we could see a bearish overthrow of that trendline.

QQQ weekly chart:

On the QQQ 15min chart I have a clear rising support trendline from the late March low, and four obvious possible resistance trendlines. The two best quality trendlines are the lowest, with QQQ already above it, and the middle of the higher three trendlines, currently in the 703 area.

QQQ 15min chart:

I’m ignoring DIA today, as my only target there was a retest of the all time high at 503.37. DIA is close but lagging the others so badly that I’m wondering whether it will even manage that. I’m provisionally assuming it will though.

On the IWM daily chart the pattern I’m watching is from the April 2025 low, and there are two obvious resistance trendlines above. The first is possible channel resistance, currently in the 292 area, and possible rising megaphone resistance, currently in the 296 area.

IWM daily chart:

On the IWM 15min chart there is another clear rising channel from the late March low, but as with SPX this channel may well evolve into a rising wedge, and the obvious rising wedge resistance trendline is currently in the 289 area.

IWM 15min chart:

In broad terms I have all of SPX, QQQ, DIA & IWM close to their target areas and I’m looking for those all to be hit and then to start a topping process for this move that doesn’t seem likely to take more than one to three weeks before equity markets are on the way down again. I think this high on equities may well last the rest of this year and perhaps next year as well.

In my post on 30th April I made some predictions for oil, equity and bond markets over the rest of this year. Nothing has happened since to change this longer term view.

1. Oil - I think it is now very likely that Brent Crude and West Texas Intermediate Crude will hit new all time highs over $150 within weeks, and that we may well see prices in the $200 to $250 range within months. Gas at the US pump will likely rise into the $6 to $9 range and oil will likely be over $100 on a monthly average basis for the rest of this year.

2. Bonds - US Inflation will likely go back over 5% within two months and may go over 7% by the end of the year. Ten year and thirty year Treasury yields will likely go over a key psychological level at 6% over the summer and may reach 9% before the next big high on yields is made.

3. Equities - Looking at SPX I’ll be looking for at least a decline into the rising support trendline from the October 2022 low, currently in the 5400 area. On a break below I would be looking for a retest of the April 2025 low at 4835.04.

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

Sell in May ..........

The old market saw goes that you should sell in May and go away, and rarely if ever in my view has that been more true than it is this year.

That isn’t to say that equity indices can’t go higher in the short term. I wrote a post on Tuesday looking at possible upside targets on SPX and QQQ that I would like to see hit, and have more modest upside targets on DIA and IWM that I’ll also look at today.

When we see the high for this move made, whether at those targets or lower, I think the prospects for equities over the summer look bleak. I covered some of the reasons for that in a post last Thursday on my The Bigger Picture substack looking at why the Iran War was largely irrelevant in the context of the economic shock being created by the closure of the Strait of Hormuz. If you haven’t already read that I’d suggest that you do that.

Before I get onto the markets today I’m going to make some predictions for oil, equity and bond markets over the rest of this year.

1. Oil - I think it is now very likely that Brent Crude and West Texas Intermediate Crude will hit new all time highs over $150 within weeks, and that we may well see prices in the $200 to $250 range within months. Gas at the US pump will likely rise into the $6 to $9 range and oil will likely be over $100 on a monthly average basis for the rest of this year.

2. Bonds - US Inflation will likely go back over 5% within two months and may go over 7% by the end of the year. Ten year and thirty year Treasury yields will likely go over a key psychological level at 6% over the summer and may reach 9% before the next big high on yields is made.

3. Equities - Looking at SPX I’ll be looking for at least a decline into the rising support trendline from the October 2022 low, currently in the 5400 area. On a break below I would be looking for a retest of the April 2025 low at 4835.04.

There will be other problems of course, a recession in the US and across much of the rest of the developed world now looks likely, food prices across the world are likely to spike up hard due to fertiliser prices and shortages, and helium shortages may well restrict world semiconductor production. Will the Fed ride in to the rescue? I think they may try, but their options look limited.

On to the shorter term markets which are at or close to all time highs:

There is increasing negative divergence on US equity indices. On SPX a weak daily RSI 14 sell signal fixed at the close yesterday and a full daily RSI 5 sell signal fixed earlier this week. That’s not encouraging for more upside but the structure is suggesting at least some more upside, the first trading day of May tomorrow is solidly bullish and there isn’t a historically strongly bearish day until 13th May. With global surpluses of oil estimated to be exhausted by 10th May that still gives markets a couple of weeks for continued wishful thinking.

If SPX does turn down directly from here there is still a decent quality double top setup. We will see.

SPX daily chart:

On QQQ a weak daily RSI 5 sell signal has fixed, and on the high retest today a possible full RSI 5 buy signal is brewing. If QQQ turns here there is still a decent quality double top setup.

QQQ daily chart:

One of the reasons I am expecting to see at least some more upside is that there are clear short term bull flags on both IWM and DIA from the highs made at the start of last week.

On IWM there is no current negative divergence on the daily chart but on a retest of the last high (and all time high) at 279.79, a full daily RSI 14 sell signal would likely start brewing. If IWM turns here, or there, there is still a decent quality double top setup.

IWM daily chart:

DIA is more interesting because there is no decent quality double top setup there, and for that reason I’d generally expect to see a retest of the all time high at 503.37 made in February. If we don’t see that there is a possible medium to low quality H&S setup but the left and right shoulders are very unbalanced. A weak RSI 5 sell signal has fixed.

DIA daily chart:

I won’t show the nice bull flag channel on IWM that is close to testing flag resistance at the time of writing, but instead I’ll show the decent quality bull flag falling wedge on DIA that broke up this morning with a target at a retest of the last high at 498.38.

DIA 15min chart:

Why am I so pessimistic about prospects for the world economy and markets here? Simple, the world is in the early stages of a major oil shock with oil prices likely in my view to hit unprecedented levels and very possibly stay there for several months. As energy is used to make pretty much everything, we are now very likely to see a serious hit to economic activity, inflation and stock prices across the world.

As an illustration of that the chart below shows what is essentially a perfect correlation between energy use and income per person across the world. Normally that energy is free flowing and uninterrupted but for the next few months at least, that flow is going to be seriously disrupted.

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

Deja Vu All Over Again

In my post at the start of last week I was looking at the escalating economic shock that is the closure of the Strait of Hormuz, but also noting that the lack of patterns on equity indices from the late March lows were nonetheless looking higher.

US equity indices haven’t gone up a lot since then, with the exception of an impressive performance on QQQ, but I’m still thinking that SPX and QQQ in particular may go higher still and have some trendline targets to put forward in the event that turns out to be the case.

First though I’d like to look quickly at the current status of the Iran War and then take you on a walk down memory lane looking at the weeks before the last really big crisis in equities, which was of course the early weeks of the pandemic in 2020.

On Iran I wrote a post last Thursday on my The Bigger Picture substack looking at why the Iran War was largely irrelevant in the context of the economic shock being created by the closure of the Strait of Hormuz. If you haven’t already read that I’d suggest that you do that.

Further to that post there are two important dates coming up. The first is at the start of May, when the US Constitution requires the administration to go to Congress to authorise this war. That may or may not happen of course and the US administration may just argue that the war was never really a war and is in any case already over, but in the event that they don’t receive that authorisation the war needs to be wrapped up within the following thirty days.

I don’t know how seriously this administration will take this constitutional obligation but at the least this suggests that any active hostilities and the current embargo may be over by the end of May.

The second date is more important and is the consensus view I’ve been reading that the released strategic reserves and all the oil in transit after the closure of the Strait of Hormuz are likely to be exhausted by May 10th. That could be delayed a bit further, perhaps by the release of more strategic reserves, but as and when any surpluses have been used up, we will start a process of price discovery / demand destruction on oil.

The shortfall of the reduced supply vs demand looks to be in the region of ten million barrels per day or more. There is a decent analysis of how that is comprised here if you are interested. In the absence of other sources the price of oil will need to rise until it reaches a level where that ten million barrels per day shortfall is eliminated by demand destruction, because those ten million barrels per day are no longer wanted at that much higher price.

In that process I think we would likely see oil prices reach new all time highs in the $150 area, and may well see then reach new all time highs adjusted for inflation, which for Brent and West Texas Intermediate Crude would be in the $225 area. This would be a major worldwide economic shock, and as you can see looking at the chart below would likely put much of the world, including the US, into recession.

The best comparisons for this oil shock would likely be the mid-1970s and 1990 oil shocks:

So to summarise, we are looking at a major economic shock to the world, starting in a couple of weeks or so, that will likely happen to a significant degree even if the Strait of Hormuz were to be fully opened to commercial shipping today, as it takes a while for oil tankers to reach their destinations even when they can pass freely.

So why are equity indices still rising? Well let’s have a look at the last major shock to the world economy in 2020. The COVID shock was predictable. I remember talking to my brother in late January 2020 discussing the WHO not imposing flight controls and speculating as to whether that was because it was already too late to stop the coming pandemic. Many people saw the problem coming. Analysts were cautious about predicting a problem that people didn’t want to see, and markets hoped it would all just go away until it became undeniable that it wouldn’t.

I wrote a post on 19th February about the nascent pandemic and talking about the risks to world markets, and one thing I was watching but didn’t mention was that by the time I wrote that post there had already for several days been growing shortages of toilet paper in shops across the world including the US. That toilet paper shortage was created by people who could see what was coming and were hoarding essential supplies.

Those hoarders were all ahead of equity markets, which rose 5.5% from the start of February 2020 into a new all time high on 19th February, at which point reality finally started to bite and equities started to fall.

I wrote another post on 24th February looking at the start of the decline from the high, and SPX went on to decline 35.4% over the next month into the crash low at 2191.86 on 24th March 2020.

Where SPX topped out in February was interesting however, with the move up in February hitting a high quality resistance trendline for the rising wedge from the late 2018 low. This entire wedge would then be fully retraced over the following month.

SPX daily chart from 24th February 2020:

The question is whether we might see a similar move here. We still have a couple of weeks before reality becomes really hard to ignore and I do have a couple of high quality trendlines that might be hit in that time.

On SPX I have a decent looking rising megaphone from the late 2022 low, and at the time of writing I have the resistance trendline in the 7360 area.

SPX weekly chart:

On QQQ I also have a decent looking rising megaphone from the late 2022 low, and at the time of writing I have the resistance trendline in the 680 area.

QQQ weekly chart:

These trendlines don’t need to be hit, and rationally they really shouldn’t be hit, but I’ll be watching these, and if reached, they should both be a solid sell there in my view.

I’ll be doing a post later this week with a shorter term view, but I was having a careful look at equity indices over the weekend, and wanted to share these as possible upside targets.

In the meantime we are in the early stages of a major economic shock to the world that may well be comparable to the pandemic in 2020, and when we make the high for the current move, I’m thinking that high may last the rest of this year and perhaps next year as well. Be careful out there.

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

 

So Far, So Good in The Strait of Hormuz

I’ve written well over two thousand posts over the last sixteen years, and this will be the first that doesn’t include any charts that I drew myself. That feels a bit strange but I’m writing this post to draw everyone’s attention to what is really important about this Iran War.

The war itself is largely irrelevant. Whether the US, Israel or Iran are bombing, or blockading, or blustering doesn’t really matter. All that is really important on the bigger picture are the Strait of Hormuz and, to a slightly lesser extent, the Bab al-Mandab Strait, the two key chokepoints for world trade routes in the Middle East:

What is important here is that the amount of tankers and trade volume through these Straits, and that traffic through the Strait of Hormuz dropped over 90% at the start of this war and has on average remained at or below that level since then.

To put that in perspective the last oil tanker that passed through the Strait of Hormuz before this war started delivered that cargo on Monday 20th April. After the war started there was a grace period while the tankers still on the sea delivered their cargoes. That grace period has now ended and the Strait is still closed.

There are still oil reserves that have been released to work through, but once they are used up this supply shock will be fully on, and prices will rise to destroy demand until supply and demand for oil balance again. That is what an oil shock is really about.

There are two previous oil supply shocks historically to compare this crisis with, the first in the 1970s and the second when Iraq invaded Kuwait in 1990. In terms of the percentage of world oil supply disrupted both were smaller, and this disruption is already close to lasting longer than in 1990 and may yet last longer than the five months in 1973.

The summary below looks at what happened in these two previous supply shocks to oil prices, equity valuations, GDP and inflation and it is grim reading:

It isn’t just about oil of course, 30% of helium worldwide comes from Qatar and and much of that capacity has been damaged in this war and will be offline for years. That capacity is not obviously even possible to replace, as it is produced as a byproduct of Natural Gas, and prices have already risen over 50% in the demand destruction cycle to balance supply and demand. Helium is vital to semiconductor manufacturing among other uses.

Other major disruptions include aluminium and urea, which is very important for fertilisers. The chart below is Urea prices from the start of 2022, rising rapidly back towards the 2022 highs. This will restrict world food production and deliver higher food prices that will feed though (no pun intended) over the next few months:

In terms of the impact on equity prices, the milder outcome was in 1990 when stocks were slightly overvalued and stocks dropped 21% peak to trough. In 1973 stocks were somewhat more overvalued and markets dropped 52% peak to trough over the next two years, only recovering to the previous highs after seven years.

So are stocks overvalued now? Well the chart below is the Schiller P/E ratio since 1870. The current level is 20% higher than the high in 1929, and about 10% lower than the all time high in 2000. For comparison the Schiller P/E ratio was at about 18 in 1973, and 17 in 1990 against a historical mean (before 1990) in the 14% to 15% area. It is currently over 40. There is a strong argument that stocks are extremely overvalued here.

How fragile is the market? Are market expectations diverging from the real economy? The chart below is a look at the S&P and Consumer Sentiment since the start of 2007. It is a thought-provoking chart:

The bottom line here is that all that really matters here is the supply shock to the world from this war in the Middle East. Nothing else is of global importance. Until commerce is flowing freely through these Straits, whether or not Iran is charging a toll, the world is exposed to a severe economic shock , stagnation and inflation. The US is a large oil exporter and is more insulated from this crisis than many, but is a long long long way from immune.

Once this supply shock ends we can see how bad this shock is likely to be as the effects feed through over the next few months and years. So far the speed of international trade has insulated the world from this supply shock but that won’t be the case going forward.

We have yet to see the real effects of this Iran War, and it is important to remember that the news about the war that we see every day is mostly just noise, of no real importance on the bigger picture here.

Overall this situation reminds me of a joke my father used to tell. A man jumps off the top of the Empire State Building and halfway down the building is heard to say ‘so far, so good’. It isn’t the fall that kills you, it’s the landing. That is the thing to focus on.

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.

The Four Horsemen - Cotton, Wheat, Corn and Soybeans

There were four big setups, each covering multiple tickers, that I was looking in my bi-weekly The Bigger Picture webinars last year and at the start of this year that looked very strong, but I was struggling to come up with any decent fundamental reasons why they might play out.

That changed when the US attacked Iran on 28th February, and since then I have been looking at these four big setups as follows:

War - I looked at the oil setups in my posts on 3rd and 13th March. Those setups have made the first targets but haven’t yet made the extension targets at retests of the 2022 highs on $BRENT, $WTIC and $GASO.

Pestilence - In my last The Four Horsemen post on Friday 27th March I was looking at the US Dollar, and that hasn’t changed much since as we are currently waiting to see if attempts to end the Iran War might be successful.

Famine - Today I am looking at the third series of setups, on $COTTON, $WHEAT, $CORN, and $SOYB.

Death - This will be the next and last in this series looking at bonds, and will give a preview of what might happen if the current US experiment in ever rising deficits and debt ends really really badly.

In term of the current ceasefire and the Strait of Hormuz almost everything about the ceasefire is obscured by a fog of confusion, but what does seem clear is that the Strait of Hormuz remains under Iranian control, that when it is open at all they are charging a stiff toll on all vessels passing through the Strait, and are insisting on payment in either Yuan or Cryptocurrency. In case you were wondering, they are welcoming payment in Trump Coins:

The main focus on the trade disruptions from the Iran War has been on oil, but there are other important goods which have been severely disrupted including Liquefied Natural Gas (LNG), Helium (vital for semiconductor manufacturing), and fertiliser, as the Persian Gulf is a very large source of Urea. It is the fertiliser disruption that concerns us today.

That disruption has been serious, prices are well up and there are serious shortages and price spikes that have already had a serious impact on the Spring planting season for both Wheat and Corn. Enough disruption may already have been caused to deliver the squeeze in supply that I am looking at in the charts below, and all four of the crops I am looking at below use a lot of these disrupted fertilisers.

The first on the list is Cotton, which broke up on 13th March from a double bottom looking for a target in the 88.64 to 89.13 range. This is a big move but looking at Cotton from the high in 2022 after the invasion of Ukraine this is still less than a 38.2% retracement of the falling wedge from that high into the lows made last year. This could potentially further deliver a move higher into a retest of the 2022 high, in which case I’d be watching the possible IHS neckline or asymmetric double bottom resistance at 107.25, close to the 50% retracement of that rising wedge.

COTTON weekly chart:

The second on the list is Wheat, which broke up very slightly from a double bottom looking for a target in the 739 to 742 range. This is a big move but looking at Wheat from the high in 2022 after the invasion of Ukraine this is still less than a 38.2% retracement of the falling wedge from that high into the lows made in 2024 and 2025. This could potentially further deliver a move even high, in which case I’d be watching the possible IHS neckline or asymmetric double bottom resistance at 720. There’s nothing here currently to suggest a move that might exceed at 61.8% retracement of that rising wedge.

WHEAT weekly chart:

The third on the list is Corn, where a double bottom setup has formed that on a sustained break over 504.50 would look for a target in the 624 to 640.25 range. This would be just under a 61.8% retracement of the falling wedge from the 2022 high to the lows in 2024 and 2025. There’s no obvious path higher at the moment unless a right shoulder forms near the possible IHS neckline in the 564.50 area.

CORN weekly chart:

Soybeans are the only one of these crops that had not formed a double bottom by the start of this year. I had been expecting one as a clear bear flag channel was forming for over a year from the low in 2024. That bear flag broke up though, came close to a retest of the possible IHS neckline at 1257.94, and has since been pulling back in what may well be an IHS right shoulder. A sustained break over 1235 would look for a target in the 1560 area, close to a 76.4% retracement of the falling wedge from the 2022 high into the low in 2024. There is no obvious path higher from there.

SOYB weekly chart:

To a large extent these setups are just routine retracements of their big moves down from the major highs made in 2022, and they are very possibly not dependent on a further escalation of the Iran War. These moves may already be baked in from the disruption of the last few weeks affecting the crops to be harvested over the next few months.

I’m planning a post over the next few days looking at possible options trades to take advantage of these moves.

The next post in this series will be looking at the bullish setups on bond yields. These are by far the scariest looking setups here and I’m aiming to get that out by the end of April.

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.

Schrodinger's Strait

In my post on Tuesday 31st March I was saying that the likely best thing that could happen in the Iran War was that the US declares victory and that the war has ended regardless of any input from Iran. This would avoid further escalation and the major economic shock to the world economy that would likely result from longer term disruption to the Strait of Hormuz and likely also the Bab El-Mandeb Strait.

In my post on Wednesday 8th April after Trump declared a ceasefire and accepted talks on the basis of Iran’s ten point plan I posted charts showing bottoming patterns on SPX, QQQ, DIA and IWM that had broken up and those all made their targets last week, with new all time highs on SPX, QQQ and IWM on the back of a ceasefire in Lebanon and numerous statements last week suggesting that a peace deal was close.

That ten point plan from Iran hasn’t changed and is as follows:

1. A guarantee that Iran will not be attacked again.

2. A permanent end to the war, not just a ceasefire.

3. An end to Israeli strikes in Lebanon and against Iranian allies.

4. Lifting of all US sanctions in Iran.

5. Reopening of the Strait of Hormuz with a transit fee of $2 million per ship.

6. Continuation of Iran’s control over the Strait of Hormuz.

7. Acceptance of Iran’s right to enrich uranium for its nuclear program.

8. Compensation for war damages to Iran.

9. Withdrawal of US combat forces from the region.

10. End to all UN and IAEA resolutions targeting Iran.

As I had mentioned then, these conditions for Iran were a lot for the US to swallow, but it appeared on Friday that the US was likely to accept most of these, squeeze out a couple of concessions from Iran, probably on nuclear enrichment and reparations, and declare a victory that to the rest of the world would look like a major defeat for the US, but would avoid the major global crisis that might well follow an escalation of this war.

On Friday the Strait was reopened on Iran’s conditions and some tankers started flowing through the Strait again, paying a toll to Iran for each transit out of the Strait. Trump said that the US blockade of traffic from Iran would continue until the agreement was finalised.

On Saturday Iran closed the Strait again because the US blockade had not yet been lifted and yesterday the US appears to have attacked and taken over a tanker containing goods destined for China. A further ten thousand US troops have been sent to the Middle East. A US team led by Jared Kushner and Steve Witkoff, two people Iran had insisted that they are not prepared to negotiate with, has been sent to Pakistan for talks with Iran today and tomorrow.

This raises some questions:

1. Are Iran prepared to negotiate with Kushner and Witkoff?

2. Were there any actual discussions or agreements last week between the two sides?

3. Are the US prepared to make any real concessions to Iran?

4. Are Iran prepared to make any real concessions to the US?

5. Is the US prepared to escalate this war and risk a global disaster?

Overall this is a dense fog of confusion but two things are obvious. Firstly some traders with amazing prescience are placing trades just before big announcements from Trump, with a short position on oil futures placed twenty minutes before Trump’s peace announcement on Friday morning delivering a profit of over $700 million by the close on Friday.

Secondly if the Iran War escalates from here the all time high retests on SPX, QQQ and IWM last week may all have made the second highs on a series of large double tops. If and when it becomes clear that there is no deal and the war is escalating the reaction from oil and equity markets is likely to be brutal.

In the meantime SPX made the IHS target at 6912 last week and if this is now a much larger double top the target on a sustained break below the late March low at 6316.91 would currently be in the 5485 - 5530 area:

SPX 15min chart:

QQQ made the IHS target at 627.5 last week and if this is now a much larger double top the target on a sustained break below the late March low at 555.60 would currently be in the 461 - 477 area:

QQQ 15min chart:

DIA made the IHS target at 486.25 last week and this is not yet a possible double top setup. This could potentially still be the right shoulder of a large H&S forming and a hard break down from here would be looking for a target in the 395 area:

DIA 15min chart:

IWM made the double bottom target in the 266-8 area last week and if this is now a much larger double top the target on a sustained break below the late March low at 238.69 would currently be in the 203 - 210 area:

IWM 15min chart:

Sometime before the end of April this fog of confusion over the status of the Iran War should clear enough to see what may happen in May. If the war ends then this crisis is over, though the IEA is telling us it will likely take two years to entirely recover from the disruption caused so far. If the war escalates then equities may well go a lot lower than the lows at the end of March.

I am hopeful but doubtful about seeing a negotiated end to this war yet. We’ll see.

If you like my analysis and would like to see more, please take a free subscription at my chartingthemarkets substack, where I publish these posts first. I also do a premarket video every day on equity indices, bonds, currencies, energies, precious commodities and other commodities at 8.45am EST, but only for paying subscribers. Other places to find me are my page on the platform previously known as twitter, and my YouTube channel.

In The Eye Of The Storm

In my last post on Wednesday last week I was looking at how far the current rally on equities might get, and at the prospects that peace negotiations with Iran might deliver something positive.

I was skeptical about the prospects for a negotiated peace, and the talks in Islamabad on Saturday were abandoned after a day, as there was never really anything to talk about. The ten points that the US had accepted as a basis for negotiation were maximalist demands from Iran that would in effect have been a humiliating surrender by the US, and the alternative proposals from the US team on Saturday were maximalist demands that asked in effect for a humiliating surrender by Iran. The talks never had any realistic chance of success or even progress on this basis.

The key issue for the world economy of course remains the closure of the Strait of Hormuz, and in that respect the situation has now deteriorated. Before the ceasefire only a small number of ships approved by Iran were going through the Strait, and now the US has announced that it will entirely blockade all Iranian ports until Iran allows free passage for all through the Strait of Hormuz. The net effect is that all commercial transit through the Strait of Hormuz has now been stopped by both Iran and the US until further notice.

This raises some questions of course, about whether the US would really attack or confiscate vessels from China, India, Pakistan that were leaving Iranian ports. To do so would of course legally be an act of war against those countries.

In the event that hostilities escalate further then the next obvious move for Iran would be to use their Houthi allies to close the Bab al-Mandab Strait out of the Red Sea:

The Bab al-Mandab Strait isn’t as heavily used as the Strait of Hormuz, mainly because the Houthis have been intermittently firing at shipping there for years, but it has been clear so far in this conflict and the Saudis have been using it as a partial replacement for Hormuz since this war started. If this is closed then millions of barrels a day of oil from Saudi that have managed to keep flowing so far during this war will stop flowing.

You may be wondering whether Saudi could instead send their oil through the Suez Canal and smaller tankers could go that way, but the maximum (Suezmax) size of oil tanker that can go through the Strait is between 120,000 and 180,000 deadweight tonnage (DWT). Most crude oil is carried by Very Large Crude Carriers (VLCC) or Ultra Large Crude Carriers (ULCC), which range from 200,000 to 550,000 DWT, and so are too large to use the Suez Canal.

We already have a major supply shock from this war and there’s not much reason at the moment to think that the war isn’t about to escalate seriously and make that supply shock a lot worse. If that happens the outlook for oil and equity prices will be bleak.

On to the markets where I will review the progress of the bottoming patterns that I was looking at last week on the 15min charts, and the negative divergence that was building over the last two days of last week on the hourly charts.

On SPX an IHS had broken up with a target in the 6912 area, and hasn’t progressed much to the upside since I was looking at this on Wednesday. A decent quality rising wedge has formed from the low suggesting a short term high may be close.

SPX 15min chart:

On QQQ an IHS had broken up with a target in the 627.5 area, and hasn’t progressed much to the upside since I was looking at this on Wednesday. A decent quality rising wedge has formed from the low suggesting a short term high may be close.

QQQ 15min chart:

On DIA an IHS had broken up with a target in the 486.25 area, and hasn’t progressed much to the upside since I was looking at this on Wednesday. A high quality rising channel has formed from the low suggesting a short term high may be close.

DIA 15min chart:

On IWM a double bottom had broken up with a target in the 266-8 area, and hasn’t progressed much to the upside since I was looking at this on Wednesday. A decent quality rising megaphone has formed from the low suggesting a short term high may be close.

IWM 15min chart:

All of these targets are fairly close and with these indices all currently at or close to rally highs day they may all still be hit.

There is a lot of negative divergence on the hourly charts here though, and on the SPX hourly chart below you can see that both RSI 14 and RSI 5 sell signals fixed on Friday.

SPX 60min chart:

I was warning subscribers from Thursday night that hourly sell signals were brewing across the board and other than SPX there are also:

• QQQ - Hourly RSI 14 sell signal brewing, RSI 5 sell signal fixed.

• DIA - Hourly RSI 14 sell signal fixed, RSI 5 sell signal reached target.

• IWM - Hourly RSI 14 and RSI 5 sell signals fixed.

I’m expecting a short term high soon and all these sell signals will likely reach their targets at the 30 area on their respective RSIs. In the absence of any actual good news on the Iran War, and I’m not currently seeing much reason to expect any, we’ll likely be seeing lower lows in the near future.

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