This weekend has been far from quiet, and what’s happening globally and here at home could definitely set the tone for how markets kick off the week.
Event though we are starting today in the green, futures were down most of the weekend.
First up, the big one, tensions in the Middle East are heating back up. Israel reportedly launched airstrikes on Iranian targets, which is causing oil prices to spike.
Whenever oil prices surge, it tends to bring inflation fears back into the conversation. Higher oil means higher transportation and production costs, which trickles down into almost everything we buy.
So, yeah, so if we had thoughts and interest rates could drop soon, that could be put on hold.
We also have a Fed meeting this week. Will be watching to see what the Fed does around interest rates. Markets don’t love uncertainty, especially when it comes to rates, so that alone could make Monday’s session a bit wobbly.
If that wasn’t enough uncertainty, here in the U.S., protests have been making headlines too. A movement called “No Kings” is gaining steam, and protests this weekend turned into large-scale demonstrations in several cities.
In L.A. alone, over 500 people were arrested, and now the National Guard is being brought in for added security. Civil unrest doesn’t usually move markets directly, but it creates this underlying nervousness that tends to push investors into safer assets like U.S. Treasuries, gold, and the U.S. dollar.
So where’s the market headed?
Overall, our recent predictions are turning out to be almost spot on. Here’s the S&P 500…
I suspect we are going to continue to see volatility over the next couple of weeks, before things get ironed out and the next impulse wave higher begins.
Nothing fancy here, we had an impulse wave higher that is now breaking down. I expect to see in ABC correction that should land us in the red box on the chart which coincides with the .382 Fibonacci retracement zone.
We will then see the bull market pick up from there.
Even though the short-term volatility will hurt most sectors, our position in NOV should get a boost over the next couple of weeks.
Take a look…
Shares have been steadily recovering since April, but with the latest geopolitical developments, I believe we’re on the verge of a classic wave 3 move, one that could surge higher and fill the gap north of $15.
Energy stocks are likely to catch a tailwind as oil prices climb in response to the growing conflict. At the same time, tech and growth names, which have been leading the market higher, may start to cool off as investors shift into more defensive sectors.
We also have some key data and events on deck this week. Retail sales numbers are due Tuesday, followed by the Federal Reserve’s rate decision on Wednesday. That makes Monday more about positioning, investors are likely to tread carefully and make modest adjustments ahead of the bigger catalysts later in the week.
Given all this, I expect a cautious tone when the markets open. But we’ll likely see some rotation into energy, gold, and other defensive names as traders look to reduce risk and gain exposure to areas with more near-term potential.
As for us, we’re in good shape. The majority of our Executive portfolio is structured in butterfly spreads, a defensive strategy we put in place in anticipation of the markets up and down. The only bull spread we’re carrying is in the energy sector, which should benefit directly from recent events.
Our long-term portfolio might take a short-term hit, but that’s exactly why we added UVXY late last week, to help hedge against this kind of volatility. We also have a few energy positions in our Ultra portfolio, which I expect to perform well in this environment.
If the market drops into the zone we’ve been watching, I’m planning to step in aggressively with call options and leveraged ETF’s.
This should be an interesting week…