The war headlines are relentless. That's all the market cares about right now. That was one scary looking drop in the overnight futures on the Russian invasion. WTI oil broke $100/barrel and was up over $8 on the day before dropping hard on news of more SPR releases and slap on the wrist sanctions on Russia. The key to this market is oil. If you get crude oil to stay under $100 and keep inflation from getting totally out of control, you can sustain a rally for 2-3 months. If oil maintains its strength, the rally will have a shorter lifespan and will peter out after a few weeks.
The market hates uncertainty, and now that its clear that US and Europe don't want to hurt themselves economically with any serious Russia sanctions, almost a best case scenario is opening up where war keeps the central banks from being too hawkish, but at the same time, weak sanctions allowing Russian oil and gas to flow freely throughout the world. Its actually even a better case scenario than an agreement with Putin, because now that he has Ukraine, he's likely to consolidate his position, and wait awhile before his next move.
The price action on Thursday was beyond my imagination, a one day turnaround that's uncommon. It shows how much panic the overnight futures were pricing in, there were no real eager sellers once the US regular trading started. Usually I don't put too much weight into one day of trading, but after so much selling and a big time break of the January SPX 4220 low, that quick of a reversal in the face of bad news and fear everywhere gives us a high probability bottom signal. Put volume was through the roof yesterday. Very heavy volume and it definitely felt like a deep cleanse to break that 4220 support and stop out the weak hands. I have enough longs for now, and I have no plans to sell anytime soon. My base case is that we've bottomed and washed out the weak hands, and there will be a sustained rally for the next 4-6 weeks.
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2 comments:
would you go long rsx and sell calls against it? or just sell puts out of the money? already down a ton and option premiums are through the roof. This might just be an event in memory 6 months down the road or you think thi is bigger?
I wouldn't touch RSX. Options way too expensive to buy. Just too many unknowns, it feels like total gambling at this point. No need to play in muddy waters. No one is forcing you, and I just don't think its a great opportunity.
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