S&P 500: Futures Under Pressure As Crude Spike Hits Sentiment

U.S. Stock Futures Slip as Naval Blockade Raises Fears of Prolonged Iran Conflict

The weekend talks in Islamabad collapsed and Trump responded with a naval blockade of the Strait of Hormuz. Futures felt it immediately. Dow Jones Industrial Average futures dropped 0.5% and S&P 500 and Nasdaq-100 futures each fell 0.6% heading into Monday’s open.

The Navy is blocking ships entering or leaving Iranian ports and reports of additional military action being considered are already circulating. Traders aren’t reading this as a short-term standoff. They’re reading it as a conflict that just got longer and more complicated.

WTI crude jumped 8.1% to $104.38 a barrel and Brent crude climbed 7.8% to $102.64. That kind of move in oil before the cash open hits stocks from multiple directions at once. Inflation risk goes up, the Federal Reserve stays on hold longer and growth stocks take the pressure. I’ve seen this sequence before and the market is running it right now.

Not everyone is positioned for an extended conflict. Some traders still think the blockade is a tactic to force Iran back to negotiations. Earnings season starts this week too with Goldman Sachs and JPMorgan Chase among the first to report. The banks give the market a reason to look past the headlines for at least a few sessions.

Technical Outlook

June E-mini S&P 500 Index futures are edging lower shortly before the cash market opening on Monday. After posting a potentially bearish closing price reversal top at 6888.00 on Friday, the market confirmed the chart pattern Sunday evening with a gap lower opening through Friday’s low.

The index is also trading on the weak side of a 61.8% level at 6812.50, the 50-day moving average at 6807.68 and the 200-day moving average at 6794.69. These are early signs of selling pressure with the 50% level at 6725.00 the first major downside target.

Typically a closing price reversal top forms after a 7 to 10 day rally. The top at 6888.00 was by my definition a classic reversal with the market making a higher high, followed by a lower close, close below the day’s mid-point and opening. It’s not a change in trend but a strong sign that selling is greater than buying at current levels. Sometimes it forms to alleviate upside pressure. It also tends to lead to a 2 to 3 day 50% to 61.8% correction so don’t be surprised if we see a steep break to 6620.75 to 6557.50 later this week.

A trade through 6888.00 will negate the chart pattern and signal a resumption of the uptrend.

More Information in our Economic Calendar.