NDX NQ

The impact from the Iran conflict will only be felt by the equity market when the Fed shifts its stance on this conflict from a transitory shock that can historically be reversed quickly to a more persistent inflationary impact. Headline inflation prints should exert increasing pressure on the Fed in the coming months, and I think the market will start to front-run this shift.

There is indeed a possibility that the Fed ignores skyrocketing inflation for an extended period of time, as it did in the 1970s. Back then, equities stayed elevated for a while alongside rising inflation and higher yields. But the longer the distortion lasts, the more violent the eventual resolution becomes. In the 1970s, equities experienced several episodes of being cut in half.

We attempted to short ES but were stopped out due to a tape bomb from potential peace-deal progress. The move was later reversed, and SPX left a shooting star right at resistance. We called the bottom around 6.4K, but as signals are starting to flash warning signs, my view is becoming increasingly bearish, as shown in the chart. Even in a bull-case scenario, I would still expect a pullback to 6.8K before it reverses higher. I’ll update the bear case when we get there. A sustained breach above resistance would invalidate my thesis.

Tighten your stops as price goes vertical.