It's Not The 1990's Gulf War

Forbes

22-06-2025

3 men reading local DAILY GAZETTE newspaper w. headline: WAR!, at Friendship House restaurant, on ... More morning after Operation Desert Storm began. (Photo by)
The misdirection before the start of the weekend gave some of us optimists hope that the US would not soon bomb Iran's nuclear sites. If you did not check the news Saturday you were saved from wondering what might happen to the financial markets until Sunday morning.
This had me going back into my memory banks and I first focused on the summer of 1990. The economy had been weakening in 1989-1990 in reaction to a restrictive monetary policy used to reduce inflation. There were many of other factors (more on the 1990 recession) as it was a global recession that impacted many countries more than the US.
Dow Industrials 1990
The start of the 1990 Gulf War on August 2nd, 1990 is noted on the chart of the Dow Jones Industrials Average. I was also writing market commentary at the time and in early July I noticed bullish signs in the crude oil and gold futures as the Herrick Payoff Index had indicated that the money flow, as well as the volume, was positive. By the time of the invasion, I wondered if Saddam was a buyer in these two markets.
The start and end of a recession are determined with a lag by the National Bureau of Economic Research. For example, the 1990 recession start date was determined in April 1991. The Dow Industrials made its low in October 1990 and by the time the Gulf War ended on February 28, 1992, the Dow was already up 20% from the lows. The bullish sentiment hit its lowest point in October 1990 which correlated with similar low readings during the stock market's decline in 2022 as well as the April 2025 lows.
It is important to understand that I am not currently expecting a similar reaction in 2025 as the state of the economy as well as the supply-demand for crude oil is much different now than it was in 1990. The exchanges are also much different. In July 1990 crude oil rose from about $19 per barrel to over $40 by October.
Crude Oil Weekly
The weekly chart shows the surge in crude oil prices in the past two weeks as it has risen from $64.90 to $77.60 per barrel. The weekly starc+band is at $77.39 with the 38.2% Fibonacci retracement resistance at $83.93. This is calculated from the June 2022 high at $130.50. The 38.2% level is a reasonable upside target for the week ahead with the 50% retracement resistance at $92.82. There is long-term chart resistance at $97.19, line a.
The on-balance volume moved above its WMA last week and has major resistance at line b. One of the indicators that I have found to be the most valuable for commodities is the Herrick Payoff Index developed by the late John Herrick. It uses volume, open interest, and price action to determine money flow. The HPI rose above its WMA at the end of May and surged sharply above the zero line three weeks ago.
Markets
For the week the increased tensions added more uncertainty which always makes the markets nervous. The Dow Jones Transportation Average was up 0.5% followed by a 0.4% gain by the iShares Russell 2000 (IWM). Both the NDX 100 and Dow Jones Industrial Average were unchanged while the S&P 500 was down 0.2%.
On a year-to-date basis, the SPDR Gold Shares (GLD) is up 28.1% as the weekly HPI has indicated positive money flow in the gold futures since October 2023. The Dow Jones Transportation Average is down 7.1%. For the week on the NYSE, there were 1376 advancing issues and 1433 declining issues.
SPY Weekly
The Spyder Trust (SPY) has closed slightly lower for the past two weeks but is still up over 1% for June. The all-time high is at $613.23 (line a) with the yearly R1 at $638.09 and the weekly starc+ band at $645.41. The rising 20-week EMA at $577.26 is not consistent with a significant top. It would take a weekly close below the yearly pivot at $647.94 to turn the yearly pivot trend negative.
The weekly S&P 500 A/D line has formed slightly lower highs over the past six weeks but it is still above its strongly rising WMA. It has already made new highs which does project new highs also for the SPY. The daily S&P 500 A/D is still below its MA as is the NYSE Stocks Only A/D while the NYSE All A/D line is still above its MA. For the last two days of the week, there were more New Highs than New Lows on the NYSE.
Invesco QQQ Trust
The Invesco QQQ Trust (QQQ) closed at $526.67 just 2.5% below the all-time high at $540.81. The yearly R1 is at $572.72 with the weekly starc+ band at $577.01. There is minor support initially in the $512-$516 area with strong support at $502.32 and the rising 20-week EMA.
The NDX100 A/D line made another new high three weeks ago and is well above its rising WMA. The weekly relative performance RS is holding above its WMA and the resistance at line c. This indicates that QQQ is still leading the SPY and should continue to outperform. Over the past three months, QQQ is up 9.9% while SPY is up 5.4%.
Bond Yields
In 1990, the 10-year T-Note yield was in a well-defined long-term downtrend but had consolidated for a few months during the recession but then continued to drop. The current MACD analysis and last week's lower close d9es favor lower yields which is also true for the 2-year yield chart. Both should be favored by US and overseas investors as they look for safety.
The weekly chart of the 30-year T-Bond yield shows the close above 5% and the 18-month resistance, line a. The initial upside targets from the breakout are in the 5.4-5.6% area. The week MACDs will point to higher yields with another close above 5%.
The stock market is likely to be hit with some selling pressure on Monday but I would not expect to see more than a 1-2% pullback unless Iran takes action to block the shipping of oil. We could see 1-2 weeks of sideways to lower trading but the support at the 20-week EMAs should hold.