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. :-)

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.