Peace or Tragedy?
Bullish or Bearish?

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As I wrote this article, President Trump addressed the nation to explain that the US has bombed three nuclear sites that are considered the heart of Iran’s nuclear enrichment program. In his address, President Trump said, “Iran, the bully of the Middle East, must now make peace. If they do not, future attacks will be far greater and a lot easier. …There will be either peace or there will be tragedy for Iran, far greater than we have witnessed over the last eight days.

We are entering into a new chapter of geopolitics in the Middle East.

I won’t speculate about what that chapter will look like, but it is likely to create a higher level of uncertainty in the short-term.

Markets, however, will speculate what this new chapter will look like in terms of how these will impact the domestic and global economies both immediately and in the future. The market reaction to wars can be counterintuitive.  There are two questions to answer that can help explain the market’s reaction and even anticipate it.

Ultimately, the market is pricing the rate of growth, quality, size, and reliability of corporate earnings. There are a lot of factors that impact these qualities of corporate earnings, ranging from macroeconomic trends to idiosyncratic situations.

With that in mind, we’ll come back to the two questions that will help explain and anticipate the market’s reaction to major geopolitical events like an escalating war.

First, let’s look at some of the other important events and trends that occurred last week, including the Fed meeting, important legislation that passed with overwhelming bipartisan support, important facts you should know about July before it begins, and more.

Important Market Messages

In the holiday-shortened week, there were two widely known potential catalysts that could have driven markets and one lesser-known catalyst that did.

The two widely known catalysts were the escalating war between Israel and Iran and the FOMC meeting on Wednesday.

Looking at the sectors, categories, and index moves in the chart below, it was a remarkably calm week. Even the biggest decline of 2.59% in Healthcare (XLV) is not particularly noteworthy.

It seems obvious that XLE should top the chart with the price of oil rising based on the war between Israel and Iran, but if XLE had not rallied 0.60% in the last 90 minutes of Friday, it would have ranked 3^rd behind Technology (XLK) and Financials (XLF).

From another perspective, the XLE’s average daily range is 1.8%, SPY’s average daily range is 0.97%, and XLV’s is 1.2%. Therefore, the change for the entire week of XLE is less than that of a normal day, and this remains true until you reach XLV.

Market’s Consolidating or Topping?

One noteworthy message can be seen in recognizing that XLK has been a leading sector this month, as shown in the chart below. This is important because energy is not going to lead this bull market higher, certainly not alone.

While the magnitude of the moves is small, the list of leading market areas is consistent with a bull market. It’s nice to see small caps (IWM) and the equal-weight S&P 500 (RSP) on the top of the list, albeit tenuously.

Following a dramatic recovery from the tariff-induced selloff in April, many areas of the market have taken a well-deserved break over the last several weeks. The consolidation patterns that are building could be constructive for a new leg higher, but there are substantial technical and fundamental headwinds.

XLK, shown below, is one of many charts that we’ll be watching closely in our Active Investing Edge trading room this week to determine which way the market may break and when that new trend begins in earnest. This chart is updated daily (without the annotations) along with many other sector charts in the “Risk On/Off – Sector Summary” of Big View for free.

The short answer to the message in this chart is that the dashed line at the highs set in May is the expected tipping point for the bears. A confirmed move below that level would suggest further weakness.

However, as you’ll read in the more detailed review below, this break may not happen, and there’s reason to be bullish.

You may recognize this chart of XLK above from the featured image associated with and at the top of the article. The featured image highlights the major sell and buy signals, but I’m leaving them out here since those are in the past for right now.

What’s important to note is the condition of the two time frames of our Real Motion (RM), momentum indicators. Here’s the analysis

1. The red shaded zones represent a level at which the RM has consistently and correctly indicated that the momentum is stretched and weakness in price has led to a pullback. This is illustrated by the red vertical arrows. Note, that these levels do not, and often don’t, occur at the same price level (i.e. Sept. and Nov. 2024). As you can see, we’re in the red zone.
2. Contrary to every other entry into the red zone, this time the market is coming off a bear market in momentum and has a strengthening rather than waffling trend. This could give it the strength to have a momentum breakout. This is indicated by the green arrow.
3. The red zone is at a historically low level (not visible in the chart), so a momentum breakout would not be viewed as extremely overbought, but rather a new, normal bullish breakout, in the same way you would view a price break above the zone. This is represented by the “?” in the green circle

The bullish summary: If the price and momentum break over the red zone, it is the most bullish pattern and condition in the XLK in over a year!

Until such a breakout occurs, this leading sector is up against formidable resistance and experiencing a loss of momentum in the shorter-term RM, which measures the momentum relationships over 10 and 50 days. (RM 10/50)

1. The red dots indicate RM dropping below the 10-day average (DMA), which warns of potential weakness if the price closes and continues below its 10-day average. XLK has not closed meaningfully below the 10 DMA yet. This is a mild bearish warning.
2. A natural place for a strong, long-term (50/200) RM trend to find support when the short-term turn bearish is at its 50 DMA in RM. If this were to happen sometime next week, we expect the price to be in the area of $231.50 to $235. This isn’t a projection that the price will go to this level, but rather an expectation that if it falls, it will find support that often defines bottoms at this level.
3. The dashed line on the XLK price chart is a strong support area based on its well-defined previous swing high price action. This level is around $235 and lines up with the projected RM support described in #2 above.

The short-term summary: The dashed line on the XLK price is the short-term line in the sand. Below it, active investors should be defensive.  Bulls looking for a pullback level should look for a reversal in this area.

Remember, this reason for such a granular look at XLK is because it is a leading sector in June, year-to-date, and last week. Therefore, any significant moves here will likely confirm the similar moves in the general market trends.

 

Did Last Week Rattle Global Equities or Other Asset Classes?

As you can see from the table below, global markets were not particularly volatile last week, but like sector performances, there are some interesting trends.

The first noteworthy item in the table speaks to the question posed at the beginning of this article, “What to expect the market to do when your country enters a war?”

The top performer last week, EIS, is the ETF of Israel’s stock market. Not only did it have a strong week, but the “Yearly Range” column shows that it is near its 52-week high.

EIS (Israel), EWY (South Korea), and VNM (Vietnam) have been leaders since April. VNM is in the process of pulling back, but the other two are at new 52-week highs.

As the tariff date of July 9^th gets closer, we may see more volatility in global equities.

Additionally, it’s worth noting that GLD was down even with all the geopolitical uncertainty. In looking a the charts of Real Motion on GLD, DXY and TLT there is a big shift developing. All are very close to their 50 DMAs and all have RM 10/50 divergences that if they break there 50 DMA they will breakout/breakdown.

This suggests that:

- GLD could break DOWN

- DXY could break UP

- TLT could break UP

We’ll cover more on these potential trend changes in the future.

What’s Next for Oil

Of course, Oil (USO) is at the top of the list. Mish was on "Fox Business" on Friday discussing this topic, also on “Asia First” the day before, and again in the weekly Monday video that Mish and I do. You can find all of our media videos on our Media page, on our YouTube channel, and the three I just mentioned below:

3 Ways to Invest Now

The Energy Stress and The Fed

Opportunities in Energy & Soft Commodities

 

The FOMC Meeting

The best example of how Wednesday’s FOMC meeting didn’t present anything that should expect any more certainty about the Fed’s next move is that with in two days of the meeting  Fed Governor Waller (voting member) stated that he doesn't think there will be tariff inflation and that the Fed could cut rates as early as July. Meanwhile, Richmond Fed President Barkin (non-FOMC voter) said he sees no rush to cut rates amid the tariff uncertainty and a resilient economy.

Chair was, however, very clear in his intention to wait for more data to support any change in their current position, and repeated several times that he believed the Fed is, “…well positioned to respond in a timely way to potential economic developments.”

There are a few points worth mentioning:

• Powell’s opening statement was: Despite elevated uncertainty, the economy is in a solid position. The unemployment rate remains low, and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2 percent longer-run objective.
• In the Summary of Economic Projections (SEP), the median participant projects GDP to rise 1.4 percent this year and 1.6 percent next year, somewhat slower than projected in March.
• In the SEP, the median projection in the SEP for total PCE inflation this year is 3 percent, somewhat higher than projected in March. The median inflation projection falls to 2.4 percent in 2026 and 2.1 percent in 2027.
• The median FOMC participant projects that the appropriate level of the federal funds rate will be 3.9 percent at the end of this year, the same as projected in March. The median projection declines to 3.6 percent at the end of next year and to 3.4 percent at the end of 2027, a little higher than the March projection.
• The Fed sees 4.2% unemployment as the low end of the natural rate of unemployment. Powell believes that the pain in the labor market is not from people getting laid off, but rather from the unemployed not being able to find jobs because businesses aren’t creating enough new ones. In this environment, if companies begin to lay off people, unemployment will rise quickly, since there is a lack of supply of jobs.
• The Fed did not expect to see much information on the effect of tariffs on inflation by now, and he noted that July 9^th is a known date when they can change. He’s sure there will be an impact on inflation and or growth, but warned that it is very hard to know when it will happen or how big it will be.

Going into the meeting, the markets expected 2 rate cuts by the end of the year, and that has not changed.

Legislation That Sent A Few Stocks Soaring

Last Tuesday evening, the Senate passed the GENIUS stablecoin bill, which establishes a federal regulatory framework for stablecoin, allowing private companies to create their own ‘digital dollars.’  The 68-30 vote showed overwhelming bipartisan support.

The simplest way to describe its importance is through an analogy: the “legalization or regulation of stablecoins” will enable payments and the movement of money in many new ways, just as the advent of credit cards changed how people spend and borrow money.

Stablecoins, will likely be the gateway that moves the masses into better understanding and using cryptocurrencies. They will also enable an explosion of new products and services in the financial industry for businesses and consumers.

A few weeks ago, in Market Outlook I highlighted the IPO of a company, Circle.com (CRCL) that issues and manages the stablecoin USDC, which is pegged to the value of the dollar and is backed by holding US treasuries.

CRCL and COIN (Coinbase.com) co-founded USDC.

You can see from the charts below that the market believes this is a significant development and that an acceptable version will pass the House of Representatives.

Even “legacy” Wall St. is already on board…

Citibank analysts project stablecoin assets could top $1.6T by 2030.

Last week, JPMorgan announced it will launch JPMD, a stablecoin-like token for institutional clients.

Bank of America CEO Brian Moynihan has repeatedly said the bank is ready to issue a U.S.-dollar backed stablecoin, “If they make that legal, we will go into that business,” he stated at both a Morgan Stanley conference and the Economic Club of Washington

He compared a future BofA stablecoin to a mix of a bank account and money-market fund, emphasizing its potential fungibility with traditional deposits.

Bank of America views stablecoins as part of a broader shift in the financial sector. They've been investing heavily in tech—$4B annually for innovation, $8–9B to run systems—and actively building blockchain capabilities.

Why is CRCL up over 400% in 10 days?

Most people I’ve heard describe CRCL say it’s the underwriter of the USDT stablecoin, and it makes money on the interest it collects from owning the Treasuries it holds to secure the value of 1 USDT = $1.

This is all true, but many of these commentators are also saying that it’s a limited business model, and what happens if interest rates drop? Anyone who thinks that’s the value is missing the real picture! That’s like assuming Netflix would never be anything but a way to get movie CD’s via the US postal service, or that Amazon would only ever sell books!

In their own words… “Circle is building a new internet financial system, making money movement around the world as seamless as sending an email.”

Plus, the transactions will be instant, available 24/7, frictionless, and very inexpensive.

Cryptocurrencies and blockchain have long been touted as a technology that would disrupt the global financial system, and now it’s happening. This isn’t a fringe movement anymore; it’s mainstream.

For example, Circle is a NYSE company, and it’s in partnership with an S&P 500 crypto based company, COIN. The Senate has passed a law supporting stablecoins, and Trump wants the House to pass the bill by the August recess.

Companies in this space are lining up to go public, and public companies (like the banks mentioned above) are going to enter this space.

The average person had little insight into the massive technical shift that happened in the corporate world when the “cloud” became the new way to build and deliver services and store data. Savvy investors, on the other hand, made a fortune in the stocks behind that move.

The blockchain and stablecoin disruption of our financial system will also be missed by most people, and it’s a huge opportunity for investors who pay attention to it.

CRCL won’t be the only 400% mover, and it won’t be the largest, and it’s not done. Keep your eyes and ears open for news and companies developing products on the blockchain, and using stablecoins, Bitcoin, Ethereum, and other cryptocurrencies.

In our Active Investing Edge trading room, we’ll have our eyes open for trading ideas in this megatrend as it falls under “blockchain” in the six megatrends I’m keen on making a priority for trade ideas when the themes heat up: AI, quantum computing, space, power, Bitcoin, and blockchain.

If you’re interested in learning more about the Active Investing Edge trading room, contact me at [email protected] or Rob at [email protected], (407)770-7637.

 

 

 

Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.  The video analysis dives deeper.

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Summary: Markets remained relatively resilient despite geopolitical tensions, with strong breadth indicators and favorable seasonal trends suggesting underlying bullishness. However, light volume, weakening short-term breadth, persistent risk-off signals, and elevated volatility point to a cautious environment amid broader strength.

Risk On

• The four indexes came off slightly on the week, but held up well especially given geopolitical complications. (+)
• The new high new low ratio remains strong above the 70 level for mid and longer-term readings. (+)
• In the recent turmoil, value has started to outperform growth and the S&P 500, though both trends remain strong overall with a potential golden cross in Growth. (+)
• Late-June into July has been one of the strongest seasonal periods for markets in the last ten years. (+)

Neutral

• Volume lightened up with more distribution days than accumulation, though small caps showed more relative positive volume. (=)
• Nearly all sectors except energy and retail came off slightly on the holiday shortened week. (=)
• The Mcclellan Oscilator and advance decline came off a little, crossing into slightly negative territory. (=)
• The color charts (moving average of stocks above key moving averages) are still looking positive over longer-terms readings though they show short-term weakness on both the 20-Day and 50-Day periods. (=)
• The stocks above key moving averages continues to come off recent highs, but shows some strength on the longer-term trend. (=)
• The modern family continues to appear weak across the board. Biotech and Regional banks weakened slightly with little change in the other members. (=)
• Both emerging and developed markets came off sharply on the week with the S&P starting to outperform them on short-term readings. Both remain in bullish phases with developed markets correcting back towards its 50-Day Moving Average. (=)
• Agriculture corrected below its 200-Day Moving for the first time since April, though the broader trend over the last year remains up. (=)
• Gold consolidated just off its all-time highs. (=)
• Rates held steady as the Federal Reserve kept rates unchanged, though they still signaled the potential for a rate drop later this year. (=)

Risk Off

• Risk gauge still shows risk-off with a 20% reading. (-)
• Volatility remained elevated at the levels it closed last week. Potentially good that it didn’t accelerate but still pointing to higher levels of risk in this environment. (-)
• Oil continued its massive surge given the escalation of turmoil in the Middle East. This $83 level has been the high for the last several years and its coincided with prior recent market corrections. (-)