Do we have another Friday morning on our hands? Just like then, the market has climbed all night long, providing hope to the bulls that this brutal bear market (AKA a few weeks of modest slippage versus lifetime highs every single day) is over at long last.
I am not quite convinced. As I’ve illustrated multiple times, the reversal tops have completed across the board (with the exception of the /NQ), and as shown here on a longer time horizon of the /ES, prices seem cleanly divided by the line that was formerly support and is now acting as resistance. The level of that line is 6772.
Back in the old days (that is, a few weeks ago) the only concern was interest rates and inflation. Now it is the Iran War which is front and center and, more directly, oil prices. The psychologically important triple-digit level was pushed aside last night, but we have sunk below it again. Over the past few trading days, oil has generally moved higher, but right now it is at the mercy of whatever the latest headline is.
The VIX for equities looks almost tick-for-tick like the crude oil chart, which just shows how powerful oil is to stocks. This nearly perfect correlation is uncommon since, let’s face it, the price of a barrel of oil usually doesn’t have a lot to do with the value of, let’s say, DoorDash or Pepsi.
The strongest big index this morning, small caps, does a handy job illustrating the support/resistance line again. Once the line was breached (arrow) the bulls keep trying to undo the damage but, thus far, have failed in each instance.
Much of Friday’s weakness stemmed from the fact that a weekend was coming up, and the whole world can change so quickly these days that traders didn’t want to be caught holding the bag. Now that Monday is here, they are feeling bolder about taking risk again.
I blew it on Friday by beating a hasty retreat, as I’ve written about already. I am not as aggressively short as I was then, plus I have zero “time risk” (that is, I am not holding 0DTE options right now like I was then but instead have positions that have at over 90 days on them at a minimum). Thus, I’ll steel myself for a suboptimal open and tend to my housekeeping duties once the smoke has cleared.
Good luck to you out there!
