The XJO will join continue to sell down this morning, with an expected open near 7,150 to 7,200. U.S futures are also tanking, spelling further selling tonight.
Since the selling was renewed last Thursday, the SP500 has fallen about 11%. With our expected open this morning, this would put us in a similar position. However, with dire U.S futures, it seems likely our market sheds the last bit of courage and sells down further during our session today.
Markets are sending a very clear message to Trump. Powell also added fuel to the fire, reversing previous comments about “transitory” tariff induced inflation, to a much more worrying tone. Things look bad right now, but we believe it will pass soon.
From a trading perspective, this means markets are moving fundamentally, making technical analysis less effect. However, we find that the market will still likely stick to key levels of historic support and resistance, even when they are in free fall. 7,150 to 7,000 are very key levels for our market historically. 6,800 is the lowest our market has traded at since 2022. This may seem like broad sweeping numbers, but with the way markets are moving with such volatility, it is useless being more accurate.
How to look at this market must be from two perspectives: an immediate term, risk management based one; and an opportunity based one.
If you have positions open, manage them. Do not capitulate. Call in and talk to one of the advisors. We are here to help, and this is not the first time markets have spat the dummy. For now, it seems wise to close any bullish positions, with a possibility to roll or switch. Even if you have bullish positions that are still “okay” for now, it seems wise to consider closing and mitigating any further potential harm. Again, please call and discuss.
From an opportunity perspective, we need to look at it from a short and medium-term perspective. In the short-term, it seems wise to sit on hands for now. Entering a bearish trade on the index might be warranted, but keep in mind that volatility is so high, Option premiums are quite expensive. If you believed the market was going to fall over the next week or so, then it may be worth considering buying a warrant, or doing an across the money Bear Put spread, or buying a Put option out a couple of months and a few strikes in the money. These strategies would either eliminate or mitigate the effects of implied volatility.
From a medium-term perspective, many are likely looking at the previous covid crash and salivating. Of course, markets don’t repeat – but they rhyme. Things are different now than they were during the pandemic, but the philosophy of buying when there is blood flowing down the street will be in many investor’s minds. Furthermore, Trump has always looked at the market as a gauge for how well a president is doing. Even though he feels the current selling is just some short-term pain, his ego is big enough that he may even simply hint at some tariff concessions, just to give the market some relief.
We all also need to take step back and realise that though the selling is hard and fast, markets aren’t going anywhere. Manage your risk, mitigate damage, take a breath and wait for the dust to settle, and watch the selling make way for cheaper prices.
US Markets
US markets capitulated on Friday, each of the three major indices saw MASSIVE selling, with falls of between five and six percent. US markets are essentially close to free-fall. Prices have been (and still remain) relatively expensive compared to historical averages, and this means there is some potential for further downside even after the big drops. US futures have opened this morning strongly lower again and its difficult to say where these moves might end. The market is sending a clear signal to Donald Trump, these tariffs will likely trigger a recession, and at the same time could trigger a rise in inflation. Markets are likely to remain extremely negative unless Trump capitulates on the tariffs in some manner. Not only were the tariffs misguided, but the values chosen seem to be based on elementary math around the trade deficit the US has with the trading partner, rather than the trading partner own tariffs. This displays a pretty worrying misunderstanding of economics.
Every sector of the SP500 closed lower on Friday, with every sector seeing major selling. Every sector saw a greater than four percent fall, with nowhere to hide. Energy, Financials, and Technology were the worst performers.
Technically, the SP500 looks extremely bearish – it has blown past any potential support levels and its hard to say where the move may end. It will likely keep falling until Trump winds back some of his tariff and other policies.
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