Don here...
Oil just ripped 11% overnight and closed at $111. That single data point makes me unable to get bullish on this market by any stretch.
We are heading into a three-day weekend with gasoline prices about to explode. Five and six dollar a gallon gas triggers what traders call demand destruction, and it will crush economic activity almost overnight.
The S&P 500 had a textbook rip-your-face-off rally this week. The index moved almost exactly 195 points to the upside, landing right on the upper edge of the weekly expected move.
That kind of precision matters. Zero DTE options are forcing the market into these expected moves with staggering efficiency.
SPX alone traded nearly five million contracts today. Add in the Spiders at 12 million and QQQ at six million, and those three products accounted for roughly a third of the entire options market.
Nothing else even traded.
The rally looks impressive on the surface. Underneath, the signals are flashing red.
Volatility futures are still bid heading into a holiday weekend. That almost never happens. The VIX term structure remains in steep backwardation, meaning the market is pricing more risk in the next 13 days than the next 47.
Here is what I covered in tonight's video:
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Oil at $111 is no longer a US problem. It is a global demand destruction event that will show up in inflation prints across every sector.
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Private credit firm Blue Owl saw a 41% redemption request on roughly $33 billion in assets. They froze redemptions at 5%, and the contagion is now spreading to their technology fund.
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Blackstone is down about 30%. BlackRock and KKR are under duress. The private credit stress is bleeding into junk bonds and regional banks like KRE.
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NVIDIA has gone nowhere for almost a year. Meta is flat. Microsoft is approaching three-year lows. Tech was already broken before geopolitics kicked in.
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Next week's expected move is $170. If you get up moves, short into them. If you get big down moves, keep your hands inside the vehicle and use defined risk.
Even if the geopolitical situation resolves over the weekend, the structural problems remain. Private credit redemptions, stalled mega-cap tech, and $111 oil do not disappear with a ceasefire.
This is far from over.
Click here to watch me break down the oil crisis, private credit contagion, and the exact levels I'm watching next week
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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