The new year is off and stumbling. The world remains in a tizzy over the drone assassination of Iran General Soleimani by orders of US President Trump. The last few charts have described the ongoing US-Iran-Iraq drama and its impact on the financial markets from the beginning of this US-Iran tit-for-tat. Scroll three charts back. It started with the SPX 2-hour chart, then the SPX weekly chart was posted, then the SPX daily, so we may as well close the circle with the long-term SPX monthly chart and technical analysis and ongoing chronology of the Soleimani killing.
The SPX is the S&P 500 which is the United States stock market. The general public will ooh and aww at the Dow Industrials Index reported on the nightly news but that is only 30 blue-chip stocks. The S&P 500 prints a new all-time record high at 3258.14 on the first day of trading this year on 1/2/20. That joy is forgotten replaced by the US-Iran geopolitical turmoil and Ringmaster Trump's daily tweets and antics on the matter.
The red rising wedge is ominous since the collapses from this pattern can be quite spectacular and jaw-dropping. The RSI and stochastics are overbot agreeable to a pullback.
The red lines show negative divergence across all indicators so price is out of gas and only attains further highs on fumes. The MACD line and money flow are trying to eek out a wee bit more upside juice but even if they do, it will likely only extend the top by a few weeks. The SPX is printing a long-term multi-month and multi-year top so all of you that bot stocks over the last year are likely in for a rude awakening this year.
Price has violated the upper band so the middle band at 2891, and rising, is on the table as well as the lower band down at 2532. Price is extended above its moving average ribbon, the 10-month MA is above the 12-mth MA, above the 20, above the 50, above the 100 above the 200, requiring a mean reversion lower. The 20-month MA at 2891, which is also the middle band, is a logical downside target say for Q1.
The ADX is down at 17 so this euphoric and orgasmic one-year Fed-induced stock market rally is NOT perceived to be a strong trend. Of course not, it is all on phony-baloney easy money. The world is awash in liquidity. The purple boxes show how the 2014 rally period was a very strong confirmed trend higher into the May 2015 top when the market died. This was the last legitimate top for the stock market. It is interesting to think that everything above is simply central banker liquidity. The ADX also shows a strong trend to the upside during 2018 but that petered out after the Q4 2018 market crash. Considering the epic stock market highs, the ADX should be up at 35-40 right now. Something smells foul.
The Aroon green line is pegged into the ceiling with nowhere to go but down. The red line has been moving higher so watch for a potential negative Aroon cross which will verify trouble and mayhem ahead. The expectation is for the stock market to place a long-term top as 2020 begins.
The 10-month MA at 3017 is a key support level that will announce major trouble ahead if it fails. The 12-month MA at 2982 is uber important since this is one of Keystone's critical long-term timing tools. If the 12 is lost at 2982, the stock market may go into a crash profile.
The news flow concerning the Soleimani killing is non-stop consuming the air time of cable news networks. Vice President Pence opined about de-escalating the situation but his boss (Trump) went in a different direction. Like an adolescent child with a new toy, King Trump takes to Twitter on the weekend tweeting out threatening tweets at Iran. It is difficult to take a guy seriously that is sitting on the toilet sending tweets. Iran returns the threats and says 35 Western sites can be targeted in retribution.
President Trump, while sitting on the commode, then tweets that 52 Iranian sites will be attacked if Iran does anything. Trump boasts that the 52 corresponds to the number of American hostages held in Iran a few decades ago. What baby stuff. This is serious business with people dying and becoming maimed. Picking 52 targets for the Trump reality television show is not a good look for the US. If there are 3 strong targets worth hitting, say 3, if it's 10, say 10, or 20, say 20. The 52 baby stuff is weak. Further, King Donny says he will strike Iranian cultural sites. Who even thinks that way? That would be hurting the people. The governments are what is wrong in the world not the huddled masses. People will hate you for generations if you destroy their artifacts and statues.
Trump wants to force Iran back to the negotiating table and thought the drone assassination against Soleimani was a means to that end; that appears to be bad judgement. The State Department is distancing itself from the mess saying that they carried out the strike under direct orders from President Trump. Secretary of State Pompeo is drilled on television about what exactly was the imminent threat that the president keeps talking about as the reason to murder Soleimani. Pompeo cannot provide any details and has no reply except to say imminent means a lot of things, in other words, Trump was talking out of his butt and now his henchmen are trying to construct a narrative that supports the drone strike he ordered. Wag the dog.
Pompeo tries to make the point that Soleimani was involved in planning a lot of terrorist acts in the future which is likely very true, but that does not sound like imminent. He justifies the killing by saying that Soleimani was involved in the planning of terrorist acts against the US. That is all fine and dandy but that means any president can simply order a drone assassination on any country's leader at any time and say that leader was involved in planning an attack. Russia's Putin is involved in nefarious stuff against the US; will we try to kill him with a drone? Who knows? Maybe. It is a new world of drone warfare now.
America has become an aggressor nation. King Donny continues to tweet out threatening messages while sitting on the throne in the Lincoln bedroom's bathroom. Trump keeps firing off tweets to Iran saying the US will now act disproportionately more against Iran if they do anything. Trump will have to likely back up his big talk down the road.
Trump is now also threatening Iraq that said they plan to vote to oust all US troops from their nation. Trump says he will pound Iraq with sanctions"like they've never seen before" if they force the US to leave. The Iraq-Iran situation is quite a daily, even hourly, theatrical drama. It's like kids playing with sticks; it's all fun and games until someone gets an eye poked out. Iran says it will no longer abide by the uranium enrichment guidelines under the 2015 nuclear deal. Everybody is rattling sabers threatening each other. They need to focus on the bright side of life.
When futures opened last night at 6 PM EST, the S&P was down -14. Dow -112. Nasdaq -43. Russell -9. Dollar/yen 107.81. Oil was up +1.2% with Brent teasing towards 70. Gold jumps 20 bucks to 1573. Silver 18.25. Copper -0.6%. Investors seek the safe havens due to the US-Iran-Iraq drama over the weekend. All the idiots involved just may start WW III. Gold and silver receive a bid. Ditto Treasuries (lower yields with the US 10-year at 1.79%). The yen is bot which sends the dollar/yen currency pair lower thru 108.
NATO announces plans to hold a meeting on the Iraq-Iran Crisis. Trump keep tweeting like a madman proclaiming that the US will hit Iran hard "if they do anything." That is what we used to say on the playground in junior high. More strangely, King Donny doubles down on the threat to destroy cultural sites. That type of rhetoric will not win over the Iranian people. Iran may choose to strike back at the United States on or about President Trump's State of the Union address on 2/4/20 only 29 days away.
Before the European indexes open for trading at 3 AM EST this morning, Brent oil tags 70. Markets hang in there overnight as Donny goes beddie-byes. After the European open, with the DAX, CAC and FTSE each down more than -1%, US futures deteriorate. S&P drops -23. Dow -217. Nazzy -68. Russell -12. The VIX catapults higher to 15.94, printing above 16, through the critical 14.39 level identified by the Keybot the Quant algo and the important 200-day MA at 15.03. This is a very bearish development. The US 10-year yield is at 1.77%. WTIC oil is up +1.7% to 64.13. Brent oil is up +2.0% to 70.00. Gold 1576. Silver 18.38. Copper slips -0.7%.
At 6:30 AM EST, futures remain weak. S&P -18. VIX 15.71. Euro 1.1202. Euro/yen 121.03. Dollar/yen 108.04. Dollar/yuan 6.9713. DAX tanks -1.6%. Thus, the table is set. The stock market has needed to pull back for the last six weeks due to the record-setting complacency perhaps the Iraq-Iran affair will serve as a downside catalyst. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 7:40 AM EST: S&P -14. Dow -133. Nasdaq -48. Russell -8. VIX 15.50. Dollar/yen 108.14. DAX -1.3%. US Treasury yields are; 2-year 1.54%, 5-year 1.60%, 10-year 1.79%, 30-year 2.25%. The 2-10 spread is 25 bips. Gold 1577. Silver 18.46. Copper -0.4%. WTIC oil is up +0.9% to 63.59. Brent oil gains +1.1% to 69.38 well off the highs above 70.
Note Added 8:04 AM EST: S&P -18. Dow -175. Nasdaq -63. Russell -10. VIX 15.71. Democrat House Speaker Pelosi plans to put a vote to the floor that would limit President Trump's war powers.
Note Added 8:50 AM EST: S&P -20. Dow -186. Nazzy -62. Russell -11. VIX 15.80. Dollar/yen 108.09. Copper -0.3%.
Note Added 9:39 AM EST: The regular trading session for US stocks is open for business this week and stocks stumble. The SPX is down 15 points, -0.5%, to 3221. LOD occurs on the opening print at 3214.64 so this number is important going forward. VIX 15.24.
Note Added 1:41 PM EST: Nothing to see here, move along, move along. The SPX is up 3 points, +0.1%, to 3238. The LOD is down at 3214 so the bulls recover big-time intraday. VIX 14.26. The recovery in the stock market indicates that traders are not concerned about the Soleimani killing. In today's age, humans yawn as other humans die. The complacency in the stock market does not mean that there should not be any concern over the US-Iran-Iraq Crisis, it simply means that traders that follow global markets are not concerned. The consensus thinks good riddance to the dirtbag and the event is priced-in to stocks. A short time ago, King Donny's son, Baron Barron, must've told him that using capital letters means you are shouting and really mean business. King Donny walks into the bathroom adjacent to the Oval Office and sits on his throne tweeting a forceful tweet; "IRAN WILL NEVER HAVE A NUCLEAR WEAPON!" Trump clarifies and stands by the targeting of Iran's cultural sites in a future air strike saying military sites are next door to the cultural sites. On the impeachment front, former National Security Adviser Bolton said he would testify at the Senate trial if subpoenaed; the republicans, however, control who will appear as witnesses and may try to block him since his information may be damaging to President Trump. Traders are moving on from the Soleimani affair.
Note Added 5:31 PM EST: Traders have forgotten about Soleimani and expect the situation to blow over. Soleimani who? The VIX prints sub 14 popping stocks higher. The SPX ends the day up 11 points, +0.4%, to 3246.
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