Phase 2: MAX Implosion

This is week 7 of the war with Iran. Bulls predicted the war would be short. They were wrong. Not only is this war not short, but the war just escalated to include a double blockade of the Strait of Hormuz.

That said, oil experts predicted that the global economy would implode by the end of April if the Hormuz remained shut. This is the middle of April and nothing has imploded so far. So who will be right in the end? The next two weeks should be decisive.

In Phase 1 there was only one blockade. Now in Phase 2 there is a double blockade. So this should be TWICE as good for stocks we are to assume.

In phase 1 of the war, Iran imposed a blockade on the Strait of Hormuz, which effectively blocked all but Iranian-friendly ships from crossing the Strait. In phase 2 of the war, Trump is now imposing a U.S. blockade on the Strait. The combined effect of these two blockades will likely restrict ANY ships from leaving the Persian Gulf. The goal of the U.S. blockade is to ratchet up financial pressure on Iran. However, it would have made a lot more sense to do this seven weeks ago because Iran has been maxing out its crude exports since the war started. Which means that the REAL pressure from this combined blockade won't be on the U.S. or Iran, it will be on the rest of the world. In other words, this double blockade will turn up the heat on the economies that are already imploding the most.

So let's take a look at the financial markets entering phase 2 of the war:

At the major index level, the S&P 500 is rallying back to a lower high with the markets now overbought. Similar to how the war started, the market is rallying on the first day of escalation, the same way it rallied on the first day the war started. Nevertheless, we see that the start of the war was the high of the war.

On AI semiconductors, bulls have late stage FOMO - This is the largest nine day % gain for the $SOX index since March 2000.

As we see (blue arrow) AI semiconductors are straight line higher from the trade war last year. In other words, unlike last year's trade war which imploded the AI bubble, this Iran war has not affected the AI bubble AT ALL. In fact, the war has generated a blow-off top in what I call the "Moron bubble" aka. the overinvestment in economic collapse.

This chart that I also showed on Twitter now shows that U.S. consumer sentiment is inversely correlated with the AI bubble. Consumer sentiment is now at an all time (recorded) low and AI stocks at an all time high.

Which means that the REAL economy is going one way and the wealth of the elite is going another. This is the "K-shaped" economy economists keep complacently talking about.

Be that as it may, when this K-shaped disaster explodes, I predict there will be extreme acrimony unforeseen by every economist who has their head in their own ass.

Which gets us to non-U.S. markets.

It's important to remember that Wall Street was recommending non-U.S. markets over U.S. markets right up until the war started. But now they are telling investors to pivot back to the U.S.

Which leaves non-U.S. stocks STILL overbought but at a lower high, going into Phase 2.

In a nutshell what we have seen since even before the ceasefire came and went is a global short covering rally across all markets. So the trillion dollar question is, will it last?

In summary, bulls believe that the war is almost over and so they are now piling back in ahead of the actual announcement.

Which is creating a blow-off top now conflated as a bottom similar to last April.

Which is how a true Artificial Intelligence bubble should end - total surprise to those who believe in it.