Can’t We Get Along?
Things got testy again this week with our good friend Iranian President Hassan Rouhani and Mr. Trump sparring over who is causing Oil tankers to blow up in the Strait of Hormuz. According to the President of Iran the problem is being caused by the attacks on neutral ships by “The Great Satan”. According to Mr. Trump, and video evidence it is the Iranian Republican Guard. Why would the U.S. blow up ships laden with oil to our ally Japan? It makes no logical sense and Prime Minister Abe of Japan took that position last week in a visit to Tehran.
But don’t let logic get in the way of dealing with Mr. Rouhani. He dismisses all video evidence of the attacks as just another lie created by the U.S. Mr. Abe is in a tough position. The U.S. is his biggest ally, but he must rely on Oil from Iran to keep the wheels spinning at home. His visit to Tehran can best be described as a rebuke. He came as a peace maker and left with his tail between his legs. Mr. Rouhani is not about to let the truth get in the way of his dealing with Mr. Trump. He is furious that the U.S. pulled out of one of the worst deals since the Munich accord in 1939. If history is any lesson Mr. Trump did the right thing. Iran has no intention of honoring the weak nuclear accord negotiated by the Obama administration.
The next question is where do we go from here? If the attacks continue and they probably will, at what point does the U.S. Navy step in to protect the shipping lanes. The U. N., one of the most spineless organizations that has ever existed will do nothing. Or worse they will draft a nasty letter saying if the U.S. and Iran can’t get along better, that they will draft another nasty letter. This clearly is not the answer.
Going back to the hostage crisis of 1979, forty years ago. We should have learned our lesson. If President Carter had backed up the embassy when the “students” attacked, there is a good chance that he would have been a two term president. Instead he took the passive road and when Ronald Regan was elected the hostages were held until he was inaugurated. Carter left office in humiliation as the Iranians didn’t want anything to do with Regan. I think that this case can be made here. With all of the Saber rattling in an eyeball to eyeball challenge I think Iran will blink and the attacks on the Oil tankers will suddenly vanish. We will see!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
How can bad news turn the equity markets higher?
This past week is a great example of that phenomena known as market expectation. Wall Street is always looking to the future. They know what has happened in the past, but they can only make calculated guesses as to what the future will be. So, the street has algorithms that show them where potential problems will probably be created. The May jobs numbers didn’t live up to expectation. Hiring was way below what the street had forecast, and you would assume listening to the talking heads that it was going to be an ugly day. In fact, the market closed out up over 2% and completed its best week of the year. The driving force for the rally? A market expectation that the FED will now cut rates in either June of July. Never discount what the street’s opinion is of future price!
The Wise Guy Report: The View From The Floor
Each week I talk about what I think the Wise Guys (floor traders) are up to with the Big Three commodity contracts: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). I also track the Market Edge (www.marketedge.com) ‘Market Posture’ which has a twenty-six year record of forecasting the intermediate-term direction of the stock market as measure by the DJIA with around 70% accuracy.
T-Notes
Even though the equity market had its best week of the year it did not dent the ten- year bonds. There seems to be a disconnect here. When the market went into a six-week tailspin it had little effect on the ten-year. There was a brief flight to quality when the world came to an end two weeks ago but since then the price has remined steady. Traders are betting the FED will cut rates in the next two months, and the market is reacting as such. Until proven wrong it would be a mistake to short this market.
Crude Oil
Crude continues to struggle. Although there were a lot of headlines when oil tankers “mysteriously” blew up in the Strait of Hormuz and there was a one-day rally, crude continues to look for a bottom. U.S. Frackers are persistently shutting down rigs and this is generally a bullish sign, but we can’t seem to get off the bottom. If you are short you should be on alert to cover and take profit. If you are long, a close below the yearly low would be the only thing to take you out of this market. If you are on the sidelines, I think it is best you observe before making a trade.
Gold
On Friday a flight to quality early in the day allowed gold to make 2019 highs. However, the rally could not be sustained, and gold closed lower for the day. This is a tough spot to be in. If you are long, you don’t want to give up the gain. If you decided to short the double top on Friday you have a nice head start but could face some headwinds if things continue to escalate in the Strait of Hormuz. We have been long for over four months and took heat on this position before it turned. I will continue to stay long unless the low at 1325 is violated. If that occurs I will cover and look for a new spot to get involved in the market.
| The Big Three Commodities Contracts
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| The Market Edge – ‘Market Posture’
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The Market Edge ‘Market Posture’, which has been Bullish since the week ending 04/18/2019 (DJIA 26559.54) remains Bullish at this time.
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