Backpedal Diplomacy
Hello All,
It’s been quite the week in the indices… as the week initially kicked off, markets sold off quite aggressively due to the lack of progress in terms of deal-making, but on Tuesday, the U.S. went forward with an attempt at de-escalating the situation with China as Bessent called the situation unsustainable & then Trump followed up by confirming & stating that the 145% tariffs aren’t going to stick & will come lower & the softening of rhetoric / de-escalation attempt by the U.S. has led this surge in U.S. equities after initially declining by 300bps on Monday…
As of now, the Q’s are leading the way +530bps on the week after posting a huge reversal off the lows & even the Dow as the laggard on the week is still +250bps after declining by 300bps on Monday… a total lockout rally since.
This past week, we wrote about hard assets & the structural framework behind hard assets given recent events & future outlook along with some historical perspective as well… you can check it out below for those whom may have missed.
Hard Assets in an Era of Soft Money
As global central banks quietly rearm their stimulus arsenals and fiscal deficits spiral past the point of discipline, the foundations of the global monetary order are beginning to crack. Amid this shift, one question looms larger than ever: Are we on the verge of a new commodity supercycle?
Lastly, recently, we published the follow up educational piece which has been highly requested and majority of the topics covered were all suggested by you all, so I hope you find good benefit.
For those who may have missed, a link to Educational Piece Part: Deux can be found here.
For those who may have missed the first educational piece, I included the range of topics covered below along with a link to the piece for those who would like to go back and read:
- General background / knowledge on all option strategies
- In-depth talk on risk / reversals & how to go about expressing / utilizing them
- Options Structuring
- When to used naked calls / puts vs. spreads
- Choosing expiration dates
- Identifying key pivots / supports / resistance zones
- General briefing on stock gaps
- What to look for in regards to fundamentals
- Implementing fundamental / macro / technicals into a trade
- Hedging
- Creating risk/reward setups
- Taking profits / managing losses
- Overall Process
- Book recommendations
A link to the first educational write-up can be found here.
- SPY
It’s been quite the week thus far amongst the indices & the big theme across the board these past few days has been followthrough to the upside post the administration pivot / softening of rhetoric against China on Tuesday. Since Tuesday, all-in-all, not much new news has come out in relation to China & or trade-deals in general which has more so allowed Vol to deflate a bit & instill a more passive bid in equities leading to these back-to-back followthrough days to the upside that we have seen.
In respect to Spooz, as we discussed Tuesday, but bulls made a clear higher-low & ever since, the indices in general have been vertical off those lows & this has more so been a lockout rally. As of today, Spooz did post a clear break of the respective downtrend that initially kicked off back in February & the opposing case is this break out to the upside is essentially a false break, which it very well could be & the indices are certainly more extended in the shorter-term due to the 3-day stretch rally off the Monday lows, but nevertheless, continue to think these coming months boils down to hard data & whether or not the anticipated weakness that many have been calling for actually materializes & or continues to get put off. In respect to tariffs, again, we stated in quite a few instances that an ‘official deal’ didn’t need to be made with China but more so just a softening of rhetoric / tone would do the trick as it shows de-escalation & or that we have reached peak-escalation & that’s exactly how its played out thus far.
For Spooz, today, we did close out at the tippy-top of the recent range Spooz / general equities have remained contained within (5100-5500 SPX) & given the good ERs report after-hours from GOOGL, the indices in general are pushing higher overnight into the initial liberation-day gap in the 5500 / 5575 range, but in general, I do think Spooz is likely due for some digestion given the recent magnitude of this upside move & in what has essentially been a pure lockout rally as we stated earlier. If we were to see Spooz consolidate & or even backtest, I would like to continue to see the bull-gap from Wednesday protected with the bigger LIS essentially being 5350 / 5340ish below on Spooz & as long as that does remain protected, do think bulls have edge to continue to work higher & or at least cap interim downside to allow for some digestion of this recent upside move before either basing & continuing higher & or rolling over if hard data starts to weaken / trade-war uncertainties continue to amplify after this recent cooling.
On the flip side, if we were to see the high-end of the range capped in terms of upside, again, the bull LIS is essentially 5350 / 5340ish (Wednesday’s Bull-Gap), but if that were to falter as support, do think we can see Spooz continue to rollover towards 5300 / 5250ish to fill the entirety of the bull-gap & that very well could mark another higher-low, & the bigger picture view continues to the that Monday’s low near 5100ish is the ultimate LIS for bulls as faltering below would likely lead to a full unwind of the 90-Day Delay move which would more so be driven by weaker hard data & or a walk-back of the recent walk-back by the administration which doesn’t seem likely at this moment as it seems fairly clear that they want to de-escalate, but of course, wildcards always remain.
A couple weeks back, we did cut our Spooz July put spreads in half for just over an 80% gain following the decline post the 90-Day Tariff Delay which was the exact low & I would like to add back to the position from what we originally took off & will either add to our July put spreads & or roll out towards August to just have an additional month on top of the July spreads. Again, biggest risk-factor from here more so revolves around hard data weakening & the tariff slowdown effects filtering through the economy as 65% tariffs & 145% tariffs on China haven’t meant a thing as the market understands the higher %’s as a negotiating ploy and nothing more, but again, damage has already been done to the economy and credibility.
- QQQ
In respect to the Q’s, again, quite the followthrough day to the upside & we essentially closed out the day right at the 90-Day delay highs / tippy-top of range the Q’s have remained in. Today, similar as to Spooz, but we did see the Q’s break out of the respective downtrend it has remained in since February & the opposing view is the Q’s more so fail at the high-end of the range & this turns out to be a false breakout & or we continue to see followthrough to the upside & bulls would like to continue to see digestion / basing higher along with higher lows & higher highs continuing to remain intact in the recent established trend since bottoming early April.
If we were to see the Q’s continue to followthrough to the upside, again, things are certainly extended to the upside in the shorter-term so a pause / digestion given the recent upside move wouldn’t be of too much surprise, but nevertheless, a breakout of the range / followthrough out of the respective downtrend should lead the Q’s to backtest the 50d above near 480 & ultimately on a backtest, bulls would like to see 460 / 467ish supportive & turn into a S/R flip zone (prior resistance turns to support).
On the contrary, if we were to see these range-highs continue to be respected as resistance, bulls ultimately need to defend the bull-gap below from Wednesday near 456ish (Bull LIS), but if that were to falter, we likely will see the Q’s retrace lower to fill the entirety of the bull-gap into 450ish which could set up for another higher low & on the bigger picture, 439 / 434ish continues to remain a bigger area of interest / demand below in terms of separating the Q’s from unwinding the 90-Day delay rally & or continuing to remain supportive of the recent higher low / higher high trend.
