00:10 Speaker A
It’s been a rocky few days in the markets as headlines about missile strikes, even war, they keep rolling in. There are a few trends, but a lot of reversals too, and that’s leading to some head scratching on the street. And on today’s stocks in translation, we’re taking a look into how this current conflict might play out in the markets based on history and some of the key technical levels to watch.
00:34 Speaker A
Let’s first take a look at some of the major market movements and what is driving them.
00:40 Speaker A
So, here we have crude oil, US dollar and Treasury. The first two are really the most important. Crude oil shot up overnight on the announcement and over the last two days, it has breached some key technical levels to the upside. We’re going to check out some charts in a minute.
00:58 Speaker A
So what this is about is supply risk. Countries around the world are scared they’re not going to get enough energy and that is causing prices to skyrocket. Then you have the US dollar.
01:05 Speaker A
It’s called the dollar wrecking ball for a reason. Also the dollar pain trade when it’s going up. So the dollar is benefiting from safe haven flows as people rushing into the safe US dollar, plus oil is priced in dollars.
01:17 Speaker A
So when you have elevated prices for oil, people have to get more dollars to buy that uh oil. Then you have US Treasuries or Uncle Sam’s bonds.
01:25 Speaker A
A lot of times in these situation, bonds are bought as kind of a hedge or a safety play, but guess what, on Monday, right after the headlines dropped over the weekend, they were down and on Tuesday they were also down again but they’re reversing a little bit. So bonds are kind of wishy-washy, um really not telling us a lot of information.
01:43 Speaker A
But if yields keep rising, that’s probably going to be because of the elevated inflation risk due to those crude oil prices. And I got two more markets I want to cover, then we’re going to get into some charts.
01:54 Speaker A
Here is gold. Gold was up on Monday, but then down big on Tuesday, and then up a little bit in the afternoon. Why is gold weaker net net?
02:02 Speaker A
That’s because the dollar is stronger. So when the dollar is stronger, that can weigh on gold and also with yields a little bit elevated, that means gold can’t compete with those yields. So there’s another reason, although it’s probably not the major one.
02:14 Speaker A
And also gold is in the midst of a three-year bull run that is absolutely staggering and it’s probably going to take a huge catalyst, uh maybe even bigger than we’ve seen to catapult gold prices even more.
02:22 Speaker A
Then you have stocks. Uh, we’re going to take a look at the S&P 500. S&P 500 sold off on the open Monday and Tuesday but then it climbed throughout the day.
02:35 Speaker A
This is very good news. This is investors uh kind of signifying that maybe things are not as bad as they seem on the TV.
02:43 Speaker A
So it’s holding support and uh there’s no panic right now. So let’s get to some charts and I’m going to start with crude oil.
02:50 Speaker A
That’s the big one. This is what’s happened over the last two days and then a lot of this move was overnight Monday into Tuesday. We saw it hit $78 a barrel.
03:00 Speaker A
This is very important because this is a three-year chart. I’m going to draw a trend line here and all you have to see is that we have punched above it for the first time in a very long time.
03:10 Speaker A
This is what we call a regime change in markets. And if crude oil gets above $80 per barrel, then that really signifies that that inflation risk is back on the table, and that’s something the Fed worries about.
03:22 Speaker A
But at $75, it’s not that big of a risk right now. So let’s take a look at the US Dollar Index next.
03:28 Speaker A
Here’s a six-month chart and this is what’s happened over the last two days. That’s that dollar wrecking ball right there. Now, the key level you want to watch is just over 100 in this index.
03:39 Speaker A
That would be these highs there because the dollar has kind of stayed there over the last few years. Here’s that same range down here, above 100 and you’re going to see a lot more headlines for that dollar wrecking ball.
03:51 Speaker A
We’re going to skip ahead here to gold futures. Here’s that three-year chart I was talking about up 176%. But this year, we had that big peak early uh in late January and then that big sell off.
04:02 Speaker A
And as I said, it’s probably going to take something big to punch through that high again. In the meantime, we’re just treading water.
04:10 Speaker A
Finally, I’m going to end on this, S&P 500. This is the range to watch, 5,800 to about 7,000. Now, 50, 6,800 is held on the close two days straight.
04:22 Speaker A
If we start punching below that, you’re probably going to see a lot of red heat maps and a lot of big sell-off news in stocks. We stay above it, we got a chance to just turn around or even break to new highs if we can get the Mag 7 and the software space back involved in the markets.
04:42 Speaker A
So watch the S&P 500 below 6,800, crude oil WTI above 80 and the US dollar index above 100.
