Wag the Dog

"Wag the dog," in addition to being the title of a film from 1997, is a term for the act of creating a diversion from damaging issues through military force. 

Now, I am not accusing the White House of wagging the dog, per se, in terms of the original attacks on Iran. But with respect to the last few days of swirling headlines regarding whether or not Iran is actually negotiating with America it is increasingly difficult to discern between standard war-time messaging versus outright conflicts with reality. 

Despite today's rally, what jumps out to me the most is that the S&P, Nasdaq, and Magnificent 7 names in aggregate, gauging the MAGS ETF daily chart, below, all remain trading firmly under their respective 200-day moving averages. 

Recall last April when President Trump made is abrupt pivot to soften his stance on tariffs. Back then, stocks staged historically violent squeezed and then wasted little time recapturing the 200-day moving average once it became clear Trump would continue to soften his tariffs. 

Here, however, the market has bounced some this week but, again, continues to show reticence with respect to following-through higher for a runaway squeeze. If it were true, for example, that Iran badly wants to make a deal, as Trump says, would the market not begin to discount the end of hostilities more boldly than it has?

True, oil has come in and never super squeezed yet. But the USO ETF remains above Monday's lows as I write this and is well off this morning's lows, to boot. 

Overall, today is another uneven rally with software, private credit the notable laggards while small caps and semis try to lead higher. Markets seem desperate to believe that a last-minute invasion can be averted, though when reality hits I suspect it will be quite sobering to fully accept.