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.

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.

Apocalypse Postponed

In my last post on Monday I gave 10% odds that a deal with Iran was reached by the time that Trump’s deadline expired yesterday evening, and no deal was reached, but Trump nonetheless said that the Iran’s existing ten point point proposal to end the war was a sufficient basis to start to negotiate a deal over the next two weeks, during which time there would be a ceasefire. US equity markets have rallied and oil prices have dropped hard on that news.

Iran’s ten point plan 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.

Obviously this is the same ten point plan that Iran presented days into the war as a precondition for talks and had previously been dismissed as an unrealistic demand for a humiliating surrender by the US, but it seems likely that the US will be trying to negotiate a variant on these ten points that would allow Trump to save some face.

In the short term there are a few issues:

1. The US has not explicitly accepted these ten points in full, so Iran will need to be flexible about negotiating without these having first all been agreed.

2. Israel has refused a ceasefire in Lebanon, and Iran may not accept the rest of the ceasefire without this.

3. US Gulf allies are very unhappy with a new status quo that would likely leave Iran much more powerful in the region after this war.

4. It is unclear to what extent the Strait of Hormuz will be open during these negotiations. Before the war 100 to 200 vessels per day passed through the Strait and so far Iran only seems to have agreed to allow ten to fifteen vessels through the Strait, and it currently seems unclear whether that would be per day or in total during the two week negotiation window.

In the meantime Iranian crowds are celebrating complete victory over the US, while Trump has declared complete victory over Iran.

Will these negotiations be brought to a successful conclusion? Hard to say but given that Trump’s rhetoric yesterday seemed to be suggesting that Iran might be destroyed with nuclear weapons over the rest of this week, pretty much anything else seems like good news.

Do we likely have a pause in the Iran War that could last at least until the end of this week? Yes, and that brings us back to the US equity markets, where a series of bottoming patterns broke up yesterday afternoon and overnight.

On SPX an IHS has broken up with a target in the 6912 area:

SPX 15min chart:

On QQQ an IHS has broken up with a target in the 627.50 area:

QQQ 15min chart:

On DIA an IHS has broken up with a target in the 486.25 area:

On IWM a double bottom has broken up with a target in the 266-8 area:

IWM 15min chart:

At minimum it seems likely that we should see at least a few days pause in this war, and even if the warring parties can’t reach agreement then the pause itself gives some time for things to develop in a positive way.

There’s an old story about a man who delayed a death sentence by promising to teach a king’s horse to sing within one year. As he persevered in this task day after day he was asked by a passer-by why he he had agreed to do this. He replied that a lot of things could happen in a year, the king could die, the horse could die, he himself could die, and who knew, perhaps the horse might even learn to sing.

In the meantime all these pattern targets on the four indices above look doable, and I am wondering about possible all time high retests. If negotiations then fail any high retests might then set up much larger topping patterns for the next leg down.

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.

'Tis But A Scratch

I read a few days ago that John Cleese was saying that politics in the US nowadays seems like an endless Monty Python sketch, and he has a point. Before I look at the US equity markets today I just want to reflect on the bizarre nature of the news we are watching nowadays.

In the ‘special military operation’ in Iran it is now clear that there were never any negotiations with Iran since the war started, and it isn’t even clear that the US wanted any talks, as the person preparing to negotiate on the Iranian side, former Iranian foreign minister Kamal Kharazi, was seriously wounded in a US/Israeli attack on his Tehran home three days ago. If he survives, his enthusiasm for future negotiations might be somewhat dampened by his wife’s death in that failed assassination attempt.

Trump declared on Saturday on Truth Social that there were only 48 hours left of the ten day pause he gave to the Iranians, and if there is no ‘deal’ in that time, which frankly seems doubtful, then he would rain down hell on the civilians of Iran. Since then he has said in another ‘Truth’ that he will now not start bombing Iran ‘back to the Stone Age’ until Tuesday (tomorrow).

Obviously that would likely be a war crime but perhaps, with the two world leaders Trump seems to respect most, Netanyahu and Putin, not necessarily in that order, both having open warrants out for their arrest for war crimes by the ICC in the Hague, that may nowadays seem more a badge of honor than a brand of shame. Certainly it has not stopped inviting both of them onto his Board (or Bored?) of Peace in a move that seems almost beyond parody.

In the meantime Trump has at various times recently declared that the regime has already been changed in Iran, that he has never been more beloved by US voters, that the USA has never been more respected in the world, that he will be conquering Cuba next, and is asking for an almost doubling of the 2024 defence budget to $1.5trn in 2027, while explaining in a speech last week, that was very briefly publicly posted by the White House, that the federal Government could no longer afford non-military expenses like Medicaid, Medicare or childcare in future as it needs to focus on war.

It is all madness of course, but nowadays also just another weekend in 2026. These are strange days.

On to the markets, where I am giving 10% odds that there is any kind of a deal with Iran before Tuesday, after which the Iran War is currently scheduled to escalate considerably. That being the case the path downwards on SPX, QQQ, DIA and IWM is clear and, unless peace breaks out unexpectedly, all those targets are likely to be reached within weeks.

On SPX a decent quality asymmetric double top broke down on Friday 20th March. The double top target is in the 6042 to 6121 range.

The downtrend looks solid with the break down below the 200dma, currently in the 6645 area, broken on Thursday 19th March and backtested as resistance shortly afterwards. More recently the daily middle band, currently in the 6607 area was backtested and held as resistance on Wednesday and Thursday last week. The double top target range is slightly above the 50% retracement of the rising wedge from the April low last year.

SPX daily chart:

On QQQ a double top also broke down on Friday 20th March with a target in the 523-4 range.

The downtrend looks solid with the break down below the 200dma, currently in the 593 area, broken on Friday 20th March and backtested shortly afterwards. More recently the daily middle band, currently in the 589 area was backtested and held as resistance on Wednesday and Thursday last week. The double top target range is slightly above the 50% retracement of the rising wedge from the April low last year.

QQQ daily chart:

On DIA an H&S broke down on 8th March with a target in the 447 area, and the low on Friday 27th March was 450.49, close to that target.

I was watching in my last post for a possible right shoulder rally from that area that could form a right shoulder on a larger H&S, and we saw that. A sustained break below 450 would therefore look for a target in the 397 area. This is a lower target than on the other indices and would likely take longer to reach.

The daily middle band was aggressively tested as resistance on Wednesday and Thursday last week and have held so far. A daily RSI 5 buy signal fixed at the start of last week but in a strong downtrend these signals are often just run over by the trend.

DIA daily chart:

IWM broke down from an H&S on Thursday 19th March with a target in the 216 area, slightly below the 50% retracement of the rising wedge from the April low last year.

IWM broke above the daily middle band, currently in the 248 area and closed above again on Friday. If, as seems likely, all these equity indices are going to fail into lower targets then I’d be looking for a close back below the daily middle band today or tomorrow.

A daily RSI 5 buy signal fixed at the start of last week but in a strong downtrend these signals are often just run over by the trend. A decent rally over the next few days could see that reach target.

IWM daily chart:

The Iran War seems very likely to intensify in the short term and that is likely to send oil prices up and equity prices down. Much suffering is likely to be caused in Iran by US bombing but is unlikely to matter much strategically. The Iranians don’t have to win this war, all they need to do is survive.

The US won every battle in Iraq but still lost the war. The calculus is similar in Iran but they are much more united, almost three times the size, sitting in terrain that strongly favors the defender, and able to close not only the Strait of Hormuz but likely also the arguably even more important Bab al-Mandab that is currently taking a lot of displaced Strait of Hormuz traffic and is also a vital waterway for the Suez Canal. If both are closed then world trade will be badly affected and we will likely see oil prices break over $200 per barrel.

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.

Trump's Tar Baby

In my last post on Tuesday 24th March I was talking about my hope that the ‘good news’ rally that had started on Monday might last a week or two, ideally through Easter, but noted that the lack of any actual good news might well be a problem. No real good news came through after that and the rally failed into another leg down, led by SPX and QQQ.

At the low on Friday there was strong positive divergence on the 15min charts on SPX, QQQ, DIA and IWM and that played out in a modest rally and low retest yesterday, and what might be a more powerful rally starting this morning.

The main reason that I was hoping for a rally that would last through Easter was that it would allow larger H&S right shoulders to develop on SPX and DIA and that didn’t happen, though I mentioned on DIA that there were two obvious possible H&S necklines and DIA broke the higher neckline but is now testing the lower neckline in the 450 area.

In terms of the historical stats this is one of the most bullish leaning weeks of the year, with significantly bullish leaning days yesterday, and then tomorrow and Thursday into the holiday on Friday, but the current rally is fragile and very subject to any news of escalation in the Iran War.

In terms of the Iran War the likely best thing that could happen here is that the US declares victory and that the war has ended regardless of any input from Iran. That would avoid any potentially disastrous escalations like a major bombing campaign targeting Iranian civilian infrastructure by the US, US ground troops in Iran and/or the Houthis closing the Bab El-Mandeb Strait from the Red Sea, all of which have potential to send oil prices beyond current all time highs for an extended period. It would allow for a possible reopening of the Strait of Hormuz, albeit on Iran’s terms and very possibly with them charging a large toll on all traffic going through the Strait.

This unilateral ending of the war by the US would involve a serious loss of face for, and weakening of, the US in the region, but would likely be the least bad way forward and it does seem that this is now being very seriously considered, hence the strong rally this morning.

Trump previously appeared to be considering at least two main options for ground insertions into Iran, but hopefully they are now off the table. If they return to active consideration there are currently about 40,000 troops in the Middle East with perhaps another 10,000 on the way. That’s a long way short of a possible invasion force but plenty to attempt ground operations with limited objectives.

On to the equity markets.

The H&S right shoulder I was hoping for never formed on SPX, but a decent quality asymmetric double top broke down on Friday 20th March and continued lower on Thursday and Friday last week. The double top target is in the 6042 to 6121 range.

The downtrend looks solid with the break down below the 200dma, currently in the 6636 area, broken on Thursday 19th March and backtested as resistance on Monday and Wednesday last week. The double top target range is still above the 50% retracement of the rising wedge from the April low last year.

If we see a decent rally from here I would be looking for resistance at the daily middle band, currently at 6629 and dropping quickly, backed up by the 200dma, currently at 6638.

SPX daily chart:

On QQQ a double top also broke down on Friday 20th March with a target in the 523-4 range and at the low on Friday was halfway there.

The downtrend looks solid with the break down below the 200dma, currently in the 593 area, broken on Friday 20th March and backtested as resistance on Monday and Wednesday last week. The double top target is just above the 50% retracement of the rising wedge from the April low last year.

If we see a decent rally from here I would be looking for resistance at the daily middle band, currently at 591 and dropping quickly, backed up by the 200dma, currently at 593.

I am wondering on QQQ how much of the current weakness is due to the disruption to the 35% of world helium supplies that are shipped through the Strait of Hormuz. Helium is an essential part of semiconductor manufacturing, prices have doubled so far, and I read that South Korea is down to a two week supply.

QQQ daily chart:

On DIA an H&S broke down on 8th March with a target in the 447 area, and the low on Friday was 450.49, close to that target. I am watching for a possible right shoulder rally from this area that could form a right shoulder on a larger H&S. No sign of that so far as yet.

If we see a decent rally from here I would be looking for resistance at the daily middle band, currently at 466 and dropping quickly, backed up by the 200dma, currently at 463. These levels are closer than on SPX and QQQ so DIA will likely test these resistance levels first.

A daily RSI 5 buy signal fixed at the start of last week but in a strong downtrend these signals are often just run over by the trend. A decent rally over the next few days could see that reach target.

DIA daily chart:

IWM broke down from an H&S on Thursday 19th March with a target in the 216 area, slightly below the 50% retracement of the rising wedge from the April low last year.

If we see a decent rally from here I would be looking for resistance at the daily middle band, currently at 257 and dropping quickly. A break back over the H&S right shoulder high would invalidate the H&S.

A daily RSI 5 buy signal fixed at the start of last week but in a strong downtrend these signals are often just run over by the trend. A decent rally over the next few days could see that reach target.

IWM daily chart:

In the short term I’m not seeing any decent patterns from the highs on any of these suggesting that a significant low may be close. Overall the setup here favors a retracement of close to 50% on all four of these indices of the rising wedges from the April lows last year, and I think we may reach all of those targets by the middle to end of April.

If we see a rally strong enough to break back over the daily middle band and 50dma on SPX and QQQ with confidence then we could see all these topping patterns fail into a possible retest of the 2026 highs. I’m skeptical about that though as the Iran War has already been a major supply side shock and on the best case that will likely take several months to a year to settle back into pre-war levels.

After that likely depends on the progress of the Iran war, and then hopefully the Iran peace, but if either goes badly then this war has the potential to cause a larger and more lasting shock to the economy than COVID. I’ll be watching the progress of the war very carefully.

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.

The Four Horsemen - The US Dollar

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 I have since written two posts on the (very bullish) setups on the oil charts first on 3rd March, and after the first phase of those bottoming setups had all made target, with a follow up on 13th March. As these patterns were all at the bottom of decent quality bull flags from the 2022 highs, I am still expecting to see full retests of the 2022 highs on all of $WTIC (Light Crude Oil), $BRENT (Brent Crude Oil) and $GASO (Gasoline), with $HOIL (Heating Oil) having already reached that target.

I’m going to assign this bullish oil setup as War, as those are the first of these four horsemen, as I’m thinking that all four of these big setups may make their targets over coming weeks and months. They may not of course if the war is successfully ended soon for whatever reason, but at the moment that seems doubtful, and there seems a very strong possibility that this conflict may persist and widen over the next few months, with an oil shock that may be larger than the big oil crisis in the 1970s.

I’m going to do posts on each of these remaining three big setups over the next few days and they will be as follows:

1. Pestilence - The US Dollar

2. Famine - Wheat, Corn and Cotton

3. Death - Bonds

The horseman assignments are a bit whimsical, but the first in the sequence is obviously War, and oil was the first setup to move seriously. Wheat & Corn are obviously Famine. The Bonds setup is so alarming I have assigned that as Death, so the US Dollar gets Pestilence as the one remaining.

Today I will be looking at the very bullish setup on the US Dollar (USD) into a retest of the 2022 high at 114.78.

To a large extent this looks similar to the bullish setup on the oils when I wrote that first post on 3rd March, as we see the same bull flag from the 2022 high, and reversal patterns from the lows over the last few months that have not yet delivered.

I wrote a post looking at this setup last year on 26th June, and in more detail than I’ll be showing today, so if you want to see the full setup including the strong supporting patterns on EURUSD and GBPUSD that is worth a read. I was saying then that US government policies were not looking particularly USD friendly, and we might instead see the setup break down, and the double bottom that I was looking at on the USD daily chart then subsequently broke up and failed back into the lows in January, which had me wondering about a possible break lower again. From the January low there was a modest rally into the end of February.

What was very interesting though was what happened at the start of the Iran War. Stock markets fell after the war started, which is normal, but what we would usually have also seen is bonds and golds going up in a flight to safety trade. That didn’t happen, with both of those falling, but what did go up in response was USD, which rose (low to high) about 2.5% in what appeared to be a flight to safety trade.

Now that is very interesting, as we have seen something like this happen before, back in 2022 in the months after Russia invaded Ukraine.

I’m thinking the whole bullish setup may play out over the next few months into a retest of that 2022 high at 114.78, and to show you why, I’m going to start with a close look at USD in 2022 after Russia invaded Ukraine on 22nd February.

If you look at the chart below you can see that there was a very strong reaction on oil prices after Russia invades (green background on the chart) which was at about $90 on $WTIC before the invasion and peaked at $126.42 on 7th March. This was a very modest oil supply shock however compared to the current one.

Given that oil was already at $90 before the invasion the impact on inflation was modest and prices had returned to the $90 area by July. Post-COVID inflation was already hitting 7.9% in February 2022 and peaked at 9.1% in June.

What was interesting though was what happened on USD, which was at about 95.5 at the time of the 2022 invasion, and then started a very strong move up into the 114.78 high in September. Given that USD was at 97.25 at the start of the Iran War, it would take a smaller move on USD now to retest that high.

USD daily chart (2021 through Jul 2023):

So let’s have a close look at this very bullish setup on USD now. Looking at my main USD monthly chart going back to 1980 you can see that the bear market from the 1984 high at 164.72 fell in a falling wedge into the 2008 low at 70.70. From there there has been a rally forming a high quality rising megaphone into the 2022 high at 114.78, slightly under the 50% retracement of that bear market which would have been at 117.71. This looks like a large bear flag setting up a retest of the low, over the next decade or two, in the 70.70 area.

I’ll look at the setup in more detail on the weekly chart but from the 2022 high a clear bull flag falling wedge has formed with the obvious next target in this sequence at a retest of the 2022 high, probably to make the second high of a double top.

This was the setup I was looking at last year and it is a strong setup, supported by matching bear flags on EURUSD and GBPUSD and a monthly RSI 5 buy signal on the USD chart. There have been twelve of these monthly buy and sell signals on the chart below since 1980, eleven made at least the minimum target at the 70 or 30 level respectively on the RSI 5, and the other made the possible near miss target in the 35 area. This really is a very strong setup on a very technical chart.

USD monthly chart:

On the weekly chart you can see the high quality rising megaphone from the 2008 low, which broke down slightly last year and a bit more this year, so as ever when this happens I’m looking for a topping setup to form. There is no obvious H&S neckline apart from on at 88.25, which is really too low to form a decent pattern, so the obvious pattern to form here would be a double top.

From the 2022 high a high quality bull flag setup has formed and with the small double bottom that has formed with the lows in the last few months the obvious next move is to break up towards the retest of the 2022 high.

USD weekly chart:

On the daily chart you can see the double bottom that broke up last year and failed back into a retest of the low in January, and the larger double bottom formed by that failure and low retest has now broken up with a target in the 104.572 to 105.239 range. Given the overall setup and the 2022 analog I am thinking this double bottom will likely reach target in coming weeks and should then continue into the obvious larger target at 114.78.

Since the last short term high at 100.54 USD has backtested the daily middle band and may be ready to go higher directly, but there is a short term fly in the ointment, with a daily RSI 5 sell signal that fixed at the recent highs. There have been ten of these sell signals since June 2022 with seven of those reaching the full target at 30 on the RSI 5 and the other three reaching the possible near miss target in the 35 area. This retracement has only reached the 40 level, so I am wondering if another modest leg down on USD may be needed for this to reach the possible near miss target, though some sideways churn could manage that instead.

USD daily chart:

On the DX hourly chart there is a decent quality bull flag formed from the March high that could be ready to break up, but the fixed daily RSI 5 sell signal has me wondering whether this needs another leg down first.

DX Jun daily chart:

Overall this is a very strong setup and, unless peace unexpectedly breaks out in the next few days, likely has a good chance of playing out over the next few weeks.

I would note that if USD does make target it does not necessarily need to form the second high of a double top there, though I think that is likely. If it overshoots a bit then I’d be watching the 50% retracement level at 117.71 for resistance.

The next post in this series will be looking at the bullish setups on Corn, Wheat and Cotton. Everyone have a great weekend. :-)

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There Is No 'I' in 'TACO'

The Iran War and the US equity markets have reached an interesting stage and I am watching with great interest to see what happens next. I’ll be reviewing the setup on equities here mainly but first I’ll review where we seem to be on the Iran war.

I was saying in my last post on Thursday 12 March that Trump had a problem in this crisis in that if he wanted to TACO here, likely by declaring victory, withdrawing US forces and moving on to something else, then the problem was that this would necessarily require some kind of agreement with Iran, and Iran, under new, younger and much angrier management, was showing no interest in talking.

That’s still the case as far as I can tell, with Iran insisting that hostilities will only cease when the US close all their bases in the Persian Gulf, and agree to pay reparations. That seems unlikely to be an acceptable outcome from the US perspective.

What complicates this further is that it seems that the US allies in the Persian Gulf are now insisting, after many and serious attacks on them by Iran during the war so far, that the US stays and finishes the job, either toppling the Iranian regime or degrading their military capabilities to an extent where they were incapable of further attacks. I understand that they may be threatening, in the event that the US pulls out without this, to end all current agreements to invest in the US and might potentially then also close all the US military bases in the Persian Gulf allies.

Trump and/or Israel have already attacked a desalinization plant in Iran and Iranian oil infrastructure since the war started and Trump was threatening over the weekend on Truth Social to bomb all the civilian power plants in Iran. Iran responded that in that event Iran would bomb the desalinization plants and oil infrastructure in the Persian Gulf States. If they were able to do that on a large scale that might well trigger a major multi-year world energy crisis while making much of the Middle East uninhabitable due to a lack of drinking water.

So the obvious course would be to continue the war until the regime in Iran is toppled and replaced with a friendlier one? Possibly but if that was to involve a ground invasion that would not be at all popular in the US, Iran has a population twice the size of Iraq and a geography that makes it considerably easier to defend than attack, except by air of course. This could develop into a Vietnam scenario.

Iran has been successfully invaded before, as the British and Soviets invaded from two sides and conquered (neutral) Iran in 1941 in a three month campaign, drove out the first Pahlavi Shah and replaced him with his son with the agreement to withdraw after the end of WW2. I would note though that the only other two previous successful wars of conquest against Iran I can find in the last 2700 years since Iran became a recognisable state were the the conquest by Alexander the Great in the 4th century BC and the Islamic Caliphate in the 7th century AD.

There are no obviously good options here, but the consequences if this war goes badly are clear. The worst case is that the world is plunged into an energy crisis that would dwarf the 1970s energy crisis, considerably reduce world growth, and be highly inflationary. That would likely be very bad for US equity indices and asset prices generally.

On to the markets where on the H&S on SPX that I was saying in my last post had broken down with a target in the 6540 area reached target on Friday. I mentioned then that this target was also close to a possible larger H&S neckline in the 6522 area and that was also hit on Friday.

This is a big level on SPX and an area where we could see a possible right shoulder rally before SPX could break down further towards the 4900 - 4950 area. Could we do that in a week? Probably yes, with an ideal right shoulder high target close to short term resistance at the daily middle band, currently in the 6757 area.

SPX daily chart:

There is another very big level being tested here on the weekly chart and that is the 50 week MA. That is currently at 6483, and the low on Friday was a solid test of this MA, which tends to be a key support area in uptrends and a key resistance area in downtrends.

SPX weekly chart:

There is further reason to be looking for a bounce here on QQQ, as the 3sd daily lower band was tested at the low on Friday. This will generally deliver a bounce and, if we see one, the daily bands should widen further to allow further and faster downside, as they already have on SPX, DIA and IWM.

If we see that bounce and then further downside I would note that the large double top setup that I mentioned in my last post has now broken down with a target in the 523-4 area.

QQQ daily chart:

On DIA the H&S that by my last post had already broken down towards a target in the 449.50 area has not yet reached target, but it has reached the 455 area. I have two possible larger H&S necklines on the chart below and they are in the 455 and 451 areas, so the higher neckline has been reached, so a rally from Friday’s low could be a right shoulder forming on a larger H&S that on a break down would look for a target in the 405 area.

Could we make that right shoulder in a week? Probably yes, with an ideal right shoulder high target close to short term resistance at the daily middle band, currently in the 475 area. A daily RSI 5 buy signal also fixed yesterday.

DIA daily chart:

On IWM an H&S has now formed and broke down on Friday with a target in the 216 area. A strong rally after the break down is common but of course a break back over the right shoulder high at 257.19 would invalidate this H&S. A daily RSI 5 buy signal fixed yesterday.

IWM daily chart:

A decent rally this week during Trump’s five day pause could therefore set up all four of these big US equity indices to go a lot lower, and the technical setup for that rally looks very promising.

There are a few potential bumps in the road with this scenario however.

1. There don’t appear to be any actual ongoing talks between the US and Iran.

2. Israel is still actively attacking Iran.

3. Iran is still actively attacking US allies in the Persian Gulf.

4. I am reading this morning that last night the US and Israel attacked a desalinization plant and a civilian gas line in Iran which are precisely the kind of targets which may escalate this war in the worst possible way.

We’ll see how this develops, but overall I am wondering if we may watching the start of a crash scenario developing here where all of these indices retrace the entirety over their moves up from the April low last year.

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.

Oil ......... Escalated Quickly, So What Now?

In my last post on oil on Tuesday 3rd March I was laying out the very bullish scenario on oil that had been forming since a series of falling wedges from the 2022 highs on light crude, heating oil and gasoline broke up in June 2025.

The large bottoming patterns on heating oil and gasoline had already started to break up when I wrote that post, and by Sunday night the double bottom on light crude had also broken up, and all of those bottoming patterns had reached target. So what now?

Well I’ve been doing a lot of reading on the Iran conflict over the last few days, and it’s hard to say how long this war might last.

What is certain is that for the war to end Iran will need to agree to end it, and at the time of writing they are refusing to even enter talks about ending this war without guarantees that they will not be attacked again and that the US and Israel will pay them reparations for the recent attacks.

I see three obvious ways that this conflict could end or evolve.

The first of these three main options is that the US knocks out most Iranian oil production and this forces Iran to the table. Knocking out that oil production would be surprisingly easy as 90% of Iran’s oil production flows through Kharg Island, in the Persian Gulf opposite Kuwait. The US has apparently been looking at the possibility of taking over that island and, if that was occupied by the US, the financial consequences could potentially force Iran into talks at a serious disadvantage.

The second of these three main options is that the war continues, but the US allies in the Persian Gulf, Kuwait, Saudi Arabia, Qatar, United Arab Emirates, Oman and perhaps Iraq make a separate peace with Iran. All of these have US bases on their territory and they could either close those bases or agree that the US would not be allowed to attack Iran from these bases.

Iran has offered all of these countries a separate peace if they no longer allow US attacks from their territory and is also offering to open the Strait of Hormuz to their exports.

This is a strong offer for two reasons.

The first is that seven million barrels per day of oil production from these states is currently stopped and much of that which is still happening cannot be exported as it needs to go through the Strait of Hormuz. A lot of natural gas production is also currently shut down and 25% of LNG worldwide is transported through the Strait. This hasn’t had a big effect on natural gas prices in the US yet but if the conflict continues that might well change. It has already had a big effect on natural gas prices in Europe.

The second is that Iran has already attacked the desalinisation plant in Bahrain and is threatening to attack more desalinisation plants. Iran gets about 3% of their water from desalinisation but across these other Gulf States desalinated water is much more important. In terms of drinking water:

• 3% in Iran

• Iraq - Unable to find a number but likely lower than any other gulf state excluding Iran

• 42% in UAE

• 70% in Saudi Arabia

• 86% in Oman

• Over 90% in Kuwait

• Over 90% in Qatar

• Over 90% in Bahrain

The availability of desalinised water is therefore an existential threat in most of these gulf states, excluding Iran and maybe Iraq, and sufficient damage to these plants could risk large areas of these states becoming uninhabitable. It is already clear that the US cannot defend these states from these and other threats and, given that many of these plants draw water from the Persian Gulf, there is also a high risk that a large oil spill in the gulf could also compromise some or all of these desalinisation plants.

There is therefore a large possibility that the Persian Gulf states may make a separate peace with Iran and that peace could involve the removal of all US bases in the region.

If the peace involved a reopening of the Strait of Hormuz and a return to full oil and gas production in the gulf states this would likely calm energy markets soon after.

The third of these three main options is that the war continues for an indefinite period with Iran continuing to attack their neighbours in the Persian Gulf even after the current bombing campaign by the US and Israel ends, and the Strait of Hormuz stays closed.

In that event 10% to 20% of world oil production stays off the market, oil and perhaps natural gas markets spike to new all time highs and perhaps a lot higher and there may be an oil shock comparable or bigger than the oil shock of the early 1970s, triggering recession and inflation throughout the developed world.

If there is also a major interruption to desalinisation in the gulf states then their economies might collapse and trigger a historic refugee crisis, as a large proportion of the Middle East becomes effectively uninhabitable due to water shortages.

Of these three options I think the first and second options are the more likely ones, the third is the disaster scenario that the gulf states will likely go to great lengths to avoid, even at the cost of breaking their current alliances with the US.

With these options in mind, let’s move on to the charts.

On light crude oil (WTIC) the double bottom broke up with a target in the 101-2 area on Thursday 5th March and made target at the futures open on Sunday night. The high on Sunday night was at 119.48 and in my ‘The Bigger Picture’ video recorded and posted shortly after the open I was talking (from about the 22.00 to 27.00 min mark) about the possible alternative routes excluding the Strait of Hormuz and the large strategic oil reserves that meant that after this initial spike up we might see a very sharp correction down on oil, which we then saw of course.

TRIGGER WARNING - I would warn that in that segment I was joking about the possibility that Pete Hegseth might in future consider doing his press conferences in a weightlifter’s posing pouch and oiling his muscles to strike poses as he spoke to the press, so if that image is too much for you then you probably shouldn’t watch this.

On all three of WTIC, HOIL (Heating Oil) and GASO (Gasoline) I noted that the falling wedges from the 2022 highs were all potentially bull flags, so we might soon see retests of those highs. In the case of WTIC that high would be at 126.42, still well short of the 2008 all time high at 147.27.

WTIC monthly chart:

On heating oil (HOIL) the IHS broke up with a target in the 3.47 area and made target at the futures open on Sunday night. The high on Sunday night was at 4.02, short of but not far away from the all time high (and bull flag target) made in 2022 at 4.46.

HOIL weekly chart:

On gasoline (GASO) the double bottom broke up with a target in the 2.913 to 3.092 area and made the lower target at the futures open on Sunday night. The high on Sunday night was at 3.15, still well short of the all time high (and bull flag target) made in 2022 at 4.12.

GASO weekly chart:

Iran has stated an aim of keeping the Strait of Hormuz closed indefinitely (if this conflict continues) with the intention of forcing light crude oil (WTIC) prices up to $200 per barrel. If they can keep the Strait closed and if the conflict continues for months then that is potentially doable. In inflation adjusted terms that wouldn’t even be a new all time high on WTIC, as the current all time high was made in 2008 at $147.27 and cumulative US inflation since then is slightly over 51%, so a new all time high in real terms would be in the $225 area.

I’m hoping that doesn’t happen, as the economic pain across the developed world would be high, and the war might well gut the economies of the US allies in the Persian Gulf. That would be a very high price to pay for whatever the objectives of this war might be, though as Donald Trump noted yesterday, as the US is currently the largest oil producer in the world, that wouldn’t be a price that the US as a whole would be paying, though it would make the current affordability crisis for ordinary US citizens a lot worse of course.

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