Risk: Something's Broken

Why is pulling repo? And why?

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Equity Storm Watch Is GREEN on the S&P 500 and GREEN on the Russell 2000

Energy is off the ground this morning and breaking out thanks to the ongoing escalation in the Middle East. Investors should be cautious and watch the 5,700 level of the S&P 500. The CBOE Volatility Index remains elevated. This morning, Nike (NKE) is taking a beating after it canceled its investor day and withdrew its full-year guidance. Don’t buy the dip. This company is a mess today.

On the Equity Strength front, my concern is that we could see the Russell reading turn negative due to the war, port shutdown, and fears of recessionary concerns. The gap between increasing breakouts and breakdown stocks is still pretty wide, but that gap will likely close as the week progresses toward the jobs report.

This is especially concerning…

Pay attention to the Russell 2000 ETF (IWM). It’s barely holding its 20-day moving average, and three of the four key technicals we follow, especially the MACD and ADX, are turning negative. This is an early warning sign.

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Good morning:

As you read this, I’ll be in a dentist's chair.

Hooray!

Yesterday, the markets experienced a short-term negative event after Iran hit Israel with missiles. The news fueled a spike in global oil prices and prompted buying in gold and other commodities. Shares of Occidental (OXY) led the way with a 3.3% gain and seems poised for greater gains.

Investors need to be cautious right now – as geopolitical risk hasn’t lasted very long for markets related in the Middle East in recent years. These events do spur short covering.

The ProShares Ultra Bloomberg Crude Oil (UCO) and the Direxion Daily Energy Bull 2x Shares (ERX) are currently in breakout conditions. That puts Energy BACK in positive strength, which we hope can ignite gains for both the upstream and downstream segments of the oil and gas space in the coming days.

On the risk side, despite OPEC’s likely abandonment of an oil-price target, it’s important to recall the last time we saw significant escalation in the Middle East, oil prices reversed in October 2023. While one event doesn’t signal a future price drop, remember that commodity markets don’t just go straight up in periods of geopolitical upheaval.

The purpose of a market is to sell, and funds will gladly sell into strength to make gains.

If you’re trading the energy sector, keep your stops tight.

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