SOXX Semis led the move higher, just as we expected from the bellwether sector.
Note that SOXX (Semiconductor ETF) is overextended on both the weekly and monthly charts. Such vertical moves never end well. Remember how we identified the top in gold back in January? This is a very similar playbook. As price goes vertical, a trailing stop can work well to protect your profits while riding the last wave.
US10Y Unless US10Y (U.S. 10-Year Treasury Yield) moves back inside the triangle, momentum remains to the upside.
MSFT (Microsoft) bounced forcefully from the double bottom I identified previously.
MAGSI expect a MAGS (Magnificent 7) pullback from the 67 area.
XAUUSD Gold reclaimed the 4770 resistance following de-escalation news and has backtested 4770 as support from above.
As long as this level holds, we could see it head toward the next major resistance, which is 5K.
Q: Hi, Sean. Traffic volume across the strait is increasing. If I have a long position in stock indices, such as ES1!, at what point should I take profits? Is this surge entirely due to CTA buying and short covering? This move to go long is somewhat puzzling and makes people lack confidence. What's your opinion?
A: I can't answer questions specific to a portfolio or a trade. I use trailing stops when price goes vertical. Hope that helps.
Equities primarily rallied on falling oil prices, which remain heavily negatively correlated with equities. Oil is falling on the absence of escalation headlines, as I mentioned before. Trump chose to go with the first option, as I outlined on X last Friday: avoid escalation to save Treasury yields, the stock market, the inflation print, and his approval ratings, all while claiming full victory. And as I outlined previously, if things continue to cool down, we could see oil grind down into the low 80s in the coming weeks and into the 70s in the coming month. This would create a buffer for equities.
However, it is imperative to understand that the war is still ongoing and, in my view, far from over. This is unlike the other conflicts we have seen since his inauguration, where the conflicts were initiated by Trump and, as long as Trump decided to move on, they were over. This time is different. The war was started by Israel. I'm not sure how deep I can go on this forum, but just know that expansion is existential for Israel, not dissimilar to Japan and Germany 100 years ago.
Whether Israel will go back to a proxy war with Iran or resume bombing Iran directly remains unknown. But we do know that more U.S. troops are arriving on a daily basis. Price action will tell us whether there is a new leg down and whether it has begun. There is no need to guess, as the market always tells you what to do. The closest example is that we called the bottom back when ES was trading around 6400 and the headlines were only suggesting escalation. All that said, stops are paramount in this volatile market.
Q: hi Sean, the recent rapid rise in the U.S. stock market — based on the previously mentioned views on price levels — has it now completed a breakout, allowing for increased positions / a more optimistic outlook on the market? Or are there still potential pricing errors in the market?
A:ES1! rallied on the absence of escalation headlines, as I mentioned before the market opened on Monday. For now, there are no clear signs of bearishness — VIX backtested and was rejected by the major trendline, $DXY remains below 99, yields are down, oil is down, and bellwether sectors are leading to the upside. Until we see clear signs of a turn, and barring any negative news from the Middle East, the setup is bullish for equities.
Equity futures gapped down following the failed peace talks, just as we expected. So far, there is no sign of escalation other than a planned naval blockade, which I doubt will have any material effect on restoring tanker traffic. This blockade is more of a charade to disguise the fact that the U.S. has lost the war. CN signed rules on countermeasures against foreign states' unlawful extraterritorial jurisdiction just a few hours ago. This gives CN legitimacy to intervene in situations like the one now unfolding in the Middle East.
We went short ES at 6865 and have our stop at breakeven. For this trade to work, we need to see escalation. It could be China sending in its navy to prevent Iranian oil from being blocked by the U.S. Navy, a resumption of bombing in Iran, or worse, a ground invasion. So far, we have not seen any of that. If the situation quiets down, or Trump delays the blockade set to go into effect at 10 a.m. EST, as he has done many times in the past with tariff threats, ES should head higher.
ES1!
VIX (Cboe Volatility Index) posted a clean break below the key trendline support following the ceasefire deal. This structure is not supportive of my S&P 500 futures shorts. It must climb back above the trendline early next week; otherwise, we face an increasingly strong buffer against equity downside.
DXY gapped down following the ceasefire deal. 99 remains the key level to watch, and DXY has struggled to post a decisive close above this level since the ceasefire deal. For now, it looks bearish. This supports equities and gold in the short term.
NDX backtested the major trendline from below on Friday. A clean break above it should invalidate my downside thesis, and the market would gradually turn back to the AI theme.
XAGUSD Silver needs to climb above 79 to see more upside.
CL1! (WTI crude futures) posted a clean break last Thursday following Trump's disappointing address on the Iran war on Wednesday night.
It then tested my multi-year resistance around 117 before reversing sharply lower on the temporary ceasefire deal. It is now sitting on major support as the world watches the negotiations this weekend.
A failure to reopen the Strait will send crude back to test the major resistance around 117, after which comes 140, and then 180-200.
If a reopening of the Strait is agreed upon and put on a clear timetable, CL will start heading back into the 80s.
BZ1! A meaningful breach from the box consolidation.
If BZ (Brent futures) does not reclaim the box in the next few sessions, it is likely to head lower.
HG1! After backtesting the key 5.55 level from above earlier this week, it has put in a decisive thrust higher.
For now, the structure has turned from bearish to bullish. Unless we see an escalation in the Middle East, copper is set to head higher to test the upper channel.
RUTBacktesting the uptrend resistance from below. A clean break will open the door to a new ATH.
Z1!’s technicals are stronger than those of most other global indices.
