Higher oil prices, higher VIX, lower stock prices, and additional Trump rants that seem to preclude a speedy end to the war.

“I don’t have any concern about [higher oil prices]…”
“There will be no deal with Iran except UNCONDITIONAL SURRENDER…”
“I have to be involved in the appointment, like with Delcy [Rodriguez] in Venezuela…”
“MAKE IRAN GREAT AGAIN (MIGA!)”

ES has almost reached our 6680 target, egged on by…

…oil prices that continue to break out…

…and rising vol.

As we’ve discussed many times, SPX’s RSI chart confirms what the Fibonacci ratios have told us: we’re nearing an important inflection point. A bounce at the SMA200 would be completely normal. A drop through it would point to potentially much lower prices.

The most likely path at this point is probably a bounce at the SMA200 into the end of March (end of Q1 meltup) followed by another drop to 6624 around April 24. But, it Trump et al don’t lay off with the warmongering, we could get there (and lower) much sooner.

Stay tuned…

The expanding Iran War has driven oil prices up beyond another trend line of resistance, adding to the market’s angst and increasing the odds of an equity breakdown. The yellow TL from 2022 has been broken numerous times, but sharp, swift pullbacks always followed.

A newer line of resistance, the white dotted trendline, began to hold sway in July 2024. It has now been broken as well. Depending on whom you ask, this breakout could be more long lasting. The likely net result: higher inflation and much lower odds of those FOMC rate cuts that stocks have been banking on.

There’s a differently-shaped pattern in RB that also shows a breakout. And, frankly, the transmission mechanism is stronger between YoY gas price changes and inflation than it is oil prices.

Either the administration was wildly overoptimistic about the pace of the war or they just decided not to worry about inflation/interest rates/stock prices. Since there is zero chance of the latter, we’ll assume that they badly miscalculated the speed and ease with which they could take over Iran’s oil fields. If CL remains above 75, don’t look for stocks to recover any time soon.

We’ve been looking to ES’ 200-day moving average for the past week or so, anticipating that ES might be allowed a tag once it reached a logical turning point. That point is now, here at the .786 Fib. It would form a nice little Gartley pattern and would give the bulls a reason to breath a sigh of relief.

If the SMA200 doesn’t hold however – say in the wake of persistently high oil prices – there are many much lower targets on which to focus.

SPX’s RSI certainly suggests much lower prices. It has been making lower highs since July 2025, a remarkable span of negative divergence that has accelerated since September and should pay off handsomely for bears.

I’d like to thank those who have sent notes of encouragement over these past few weeks. I have been experiencing daily headaches for over a year. They were accompanied by vision changes, hearing changes, fatigue, and intracranial hypotension which caused my brain to literally sag within my skull. I was fortunate to connect with one of the world’s top experts in cerebrospinal fluid leaks who surgically repaired what was ultimately diagnosed as a venous fistula. The improvement in symptoms has been dramatic. Although I am very sore from spine surgery, I am looking forward to getting back to normal. Thank you for your patience and your support.

I will be working over the next few days to finish the work on the website’s membership management system. So, this would be a good time to renew or update your memberships before everything is back behind a paywall.

Stay tuned…

There’s an excellent interview in The Market with William White, former chief economist for the BIS, who worries that America is turning against the very financial system it has built.

William White is used to warning the powerful in politics and the financial world – and being ignored by them. The Canadian-born economist has worked for central banks for almost fifty years, including the Bank for International Settlements (BIS) in Basel, where he was chief economist until 2008. He was among the few voices warning of the financial crisis at the time.

Today, he worries about bloated debt levels in most Western economies, complacent financial markets and a fragmentation of the world economic and financial system. «We could see the formation of two blocks, one dollar based, and the other renminbi based, where the renminbi block will be more and more backed by gold. People will choose their block in part based on whom they trust», White says.

continued…

NVDA’s shares are slightly higher after a lukewarm response to yesterday’s earnings and outlook. Shares popped up to tag the .786 Fib retracement in the after-hours, but quickly fell back to where they had closed. Who knows if the H&S pattern will play out. But a tag of the SMA200, currently at 174, seems a foregone conclusion.

4Q revenue grew 73% and the first-quarter outlook beat estimates. But concerns remain over a perceived bubble in AI processors fueled by circular financing, where the company lends money to AI startups and cloud providers (e.g., OpenAI, CoreWeave), which then use those funds to purchase NVDA’s GPUs.

Although the company vigorously denies it, investors (and short sellers) believe the practice creates artificial revenue growth and demand. Shades of Enron…

When the company whose market cap is 8% of the S&P 500 sneezes, it’s no surprise that futures seem to be catching a cold.

It’s an important session for stocks, at least so far as SPX’s RSI is concerned.

It’s NVDA’s world, and we’re all just living in it. The earnings and outlook are due out today. If it plays out, the aging H&S pattern suggests a very large decline. But…

The rest of the market is watching closely. It would be difficult to diverge from NVDA – in either direction.

continued for members…

Oil and gas prices continue to rise, which should give Fed doves some pause. It highly unlikely that going to war with Iran would bring them down.

Our 2s10s model continues to send a very strong warning.

Stay tuned…

Friday’s post will be released in the afternoon/evening. There will be no posts next Monday-Wednesday while I’m stuck in hospital with minor surgery.

Our forecast remains unchanged at this time.

Futures are off moderately following Friday’s bounce from the Supreme Court’s ruling that the bulk of Trump’s tariffs are illegal.  The benefits which might have ensued from tariffs being rolled back, however, were almost immediately negated by Trump’s insistence that alternatives to the current tariff regime would be implemented. It’s yet another chapter in the year-long tariff chaos that has pushed inflation higher and injected unwanted uncertainty into business and geopolitical dealings.

continued for members…

VX is still broken out, but has yet to top last week’s highs.

The USD is still consolidating against both the euro and the yen…

…while oil and gas continue their stealth breakouts thanks to the credible threat of a shooting war with oil producer Iran.

It remains to be seen whether a wag-the-dog exercise in the Middle East is even necessary any more, as the tariff turmoil has kicked the Epstein matter off the front page for the time being.

Meanwhile, the strong recent PCE data drove Fed governor Waller to ponder whether a rate hike might be in order in March.

Annualized Q4 GDP came in much lower than expected: 1.4% versus 3.0%. At the same time, December PCE (ex food and energy) heated up from 2.8% to 3.0% YoY (0.4% MoM.)  These data don’t necessarily scream stagflation, but they more than whisper it.  We’ll see if the algos are listening.

Interesting goings on in the bond market, as the 10Y continues to counter oil/gas.

They’re usually in lock step. As YoY gas prices drop, CPI generally keeps pace.

But, RBOB futures are up 22% since Jan 5. The 10Y kept up until Jan 20, but has been plunging ever since.

It might be because it’s diverged so much from CPI. Looking at the chart below, you have to wonder whether the risk implied in the 10Y is problematic.  There’s no question that CPI is understated.  But, does that explain the growing divergence between the 10Y and CPI?

Historically, it’s an unusual phenomenon, code for “is this time different?” There are only a dozen instances over the past 80 years where the 10Y remained in as tight a band as it has since June 2023 (108 bps.) It’s worth noting that no prior episode with a band this tight has such elevated CPI to begin with. It’s also worth noting that the divergence between the two is building, which is unusual in the sense that most prior divergences peaked sooner.

Of the four most comparable episodes over the years, three had positive equity returns: Jul 96 – Dec 97 (+27.8%), Sep 05 – Aug 07 (+10.2%), and Dec 74 – Sep 76 (+26.7%.) The market fell about 20% in 1977 following the 1974-76 period.  It was relatively flat following the 1996-97 period. And, it was a disaster following the 2005-07 period. It tumbled 12% in early August, rebounded until October, then crashed 58%. But, it’s the fourth episode which might be the most comparable.

continuing…

Everything is great. GDP growth is supposedly strong. Unemployment is supposedly low. Inflation is supposedly licked. Nothing to worry about. So, why is consumer confidence at an 11 1/2 year low?  At 84.5 for January, the Conference Board’s index reached the lowest levels since May 2014 — all while GDP growth has been relatively strong.

“I’ve never seen anything like it. I’ve been doing this for 40 years…a long time to never see anything like this.”
Diane Swonk, KPMG chief economist

Confidence also dropped for well-to-do households which have been driving the strong spending data which have underpinned the economy. Current conditions have reached levels not seen since the pandemic, while expectations are actually worse than the pandemic lows.

The job market is a significant culprit, with confidence regarding the ability to find a job closely matching the reality. Note that these are not BLS data, which have been more suspect than ever since Trump fired former Bureau of Labor Statistics Commissioner Erika McEntarfer over data that didn’t flatter him.

The decline in job openings over the past several years has been in stark contrast to the rise in stock prices. Layoffs rose over 200% from December to January, with large job cuts at major employers such as Nike, Amazon and UPS.  According to the latest University of Michigan sentiment report, worries about job stability and earning potential in the next five year were “particularly elevated” for higher-income and higher-educated consumers. 

And it’s all happening at a time when inflation is still problematic for American households. Even if you buy Trump’s inflation numbers (I don’t) the recent decline in the rate of inflation certainly hasn’t brought prices down. The essentials are still about 30% higher than they were five years ago, sharply outpacing the 20% salary gains over that same period.

It’s not just lower income Americans who are hit hard by stubbornly high prices, but they are disproportionately affected. Wealthier consumers generally have larger cushions in everything from their bank accounts to their real estate holdings and stock portfolios.

“Traditionally, the economy is doing really well, but ordinary people are saying they’re not.”
Matt Stoller, American Economic Liberties Project

They call it the K-shaped economy because it affects the “have-nots” much more than the “haves.” But, as we discussed in our Look Ahead at 2026, it has always forced a Fed policy response that ends up affecting everyone — even wealthy investors.

Stay tuned.

* * *

The futures are bouncing slightly just prior to the open.

VX is still well above the TL from last April and its 200-day moving average. But it failed to make a new high last week, which means the downside risk for equities remains elevated but without confirmation.