Weekend Market Report
Welcome to another edition of the Weekend Market Report! In this weekend’s report, we dig into the Trump Trade in our spotlight section, we share four great links and graphics, and we present our 1 week ahead forecasts for gold, silver, and the S&P500 historical volatility.
General Market Commentary
The markets were extremely volatile this week with the Nasdaq, Dow Jones, S&P500, and Russell 2000 closing lower. Some of that volatility was due to comments made at the Republican National Committee (RNC) by former President Trump, now the official nominee.
There is a rumor of a “Trump Trade” being priced in the market which we discuss in the spotlight section of the newsletter below.
Both gold and silver prices fell this week, which was in line with our directional forecasts. Right now both gold and silver price forecast models are 71% correct as last week’s price directional forecasts were to close lower and they did.
The S&P500 historical volatility forecast was for higher volatility last week and initial data shows the forecast to be correct, so the model is currently 67% correct.
Taiwan Should Pay for Defense
The one thing that set off an already fragile tech market was former President Trump’s comments on Taiwan. In typical Trump form, he suggested that Taiwan pay the United States for defense.
“I know the people very well, respect them greatly. They did take about 100 per cent of our chip business. I think, Taiwan should pay us for defence,” Trump said in interview with Bloomberg Businessweek on June 25 but published on Tuesday.
This sent shares of Taiwan Semiconductor (TSM) and many semiconductors stocks (NVDA, SMH, etc) lower in a very volatile session.
Impact Of 0 Dte Options
As I continued my study of options, I stumbled across this informative post and video about zero-day-to-expiration (0DTE) options and how they affect the market.
As volumes have increased, so have concerns around the market impact of these products. Specifically, the fear is that market makers hedging these options could become outsized relative to the underlying S&P market, and therefore option “gamma hedging” (explained below) may be exerting undue influence on the market. Over the past year, commentators have blamed 0DTEs for everything from exacerbating intraday volatility to suppressing it, with estimates for market maker positioning ranging from “record short” to long $50bn gamma in SPX alone. What’s behind these often contradictory headlines, and crucially, who is right?
The moral of the story is that while 0DTE option trading for the S&P500 is huge, it doesn’t affect the market that much.
Option Strategy Chart
I found this handy option strategy chart, with profit and loss potential on Reddit, I just don’t remember which group.
This is a handy chart with simple and very complex strategies. I used to think that the warnings about options being a sophisticated instrument that should only used by sophisticated traders was a myth to scare away people. I was wrong. Options are tricky trading instruments that can make you a lot of money due to their leverage.
Someone Bought $141 Million 1dte Crwd Options
Crowdstrike (CRWD) had a terrible day yesterday. The cybersecurity company had a massive outage yesterday that affected millions of people. This outage halted nearly all air traffic yesterday and is a massive black eye for the company.
Yet, someone made a small fortune buying 141 million dollars worth of Crowdstrike (CRWD) put options.
Is this a case of insider knowledge or pure luck? I’m sure the SEC will want to find out.
Silver Price Forecast 1 Week Ahead
Silver closed down to $29.19 from $30.89, a drop of -5.50%. Last week’s price direction forecast was correct. The model is currently correct for price direction 71.4% (5 out of 7).
The mean silver price forecast for next week is lower. We are forecasting a possible swing high price of $29.86 and a swing low of $28.33 for next week.
The 4-week outlook for prices looks to be flat to slightly higher.
Gold Prices Forecast 1 Week Ahead
Gold closed down to $2,400.80 from $2,414 last week, a drop of -0.55% Last week’s price direction forecast was correct. The model is currently correct for price direction 71.4% (5 out of 7).
The mean forecast for the Gold prices is lower for next week. A swing high price of $2,422.36 and a low of $2,373.84 is forecasted.
The 4-week outlook for prices looks to be flat to slightly higher.
S&P500 Historical Volatility Forecast 1 Week Ahead
Last week’s 5-day historical volatility model closed at 0.132 from 0.111 the week before. Last week’s forecast for historical volatility (HV) was correct. The 5-day HV directional forecast for next Friday is for HV to close higher.
The directional forecast model is 2 for 3, or 67% correct. Note, that this accuracy will probably drop to about 60% accuracy over time as we test it in the field.
The forecast is predicting lower HV for the next 4 weeks.
Spotlight: The Trump Trade
At Neural Market Trends we tend to refrain from politics but we do look at what kind of new policies an incoming administration might bring with it and how that could affect the markets.
One week before the RNC, the markets started to behave differently. It could’ve been a combination of things: semiconductor stocks peaking, interest rates being cut, or something else.
While semiconductors and darlings like Nvidia have had amazing runs, they might be pausing or have reached their peak. We don’t know for certain and will wait things out till Nvidia earnings in August. If TSM’s earnings area guide, then we expect Nvidia to have a great earnings report too, and move higher.
Perhaps the market was behaving oddly because there’s a growing consensus that the Federal Reserve might cut interest rates as soon as it’s September meeting.
Then there’s the “something else” which Traders have named the “Trump Trade.”
The Trump Trade is related to stocks that would do well under another Trump administration. The markets appear to welcome a second term for the former President. After all, Mr. Trump is signaling all the right things to the market: lower taxes, lower corporate tax rates, and higher tariffs.
Usually, higher tariffs are a bad thing and will push inflation higher, but they could also have an unintended outcome: a resurgence of onshore manufacturing. The United States has relied on outsourcing our manufacturing and labor to countries like China for decades.
New Trump tariffs could bring manufacturing back home and give a boost to blue-collar labor. The operative word is could; right now it’s just my big fat guess.
We all know that Trump is an oil guy, a gun guy, an anti-Chinese trade guy, and a “make our allies pay” guy. You have to ask yourself knowing this, what companies would benefit from this populist behavior?
Those stocks are probably agricultural, oil and gas related, guns, prisons, real estate, some technology, and finance.
What if your technology company isn’t on Trump’s list? You’ll probably get populist Executive Orders that could decimate your industry. The Green Energy and the EV car industry have a dim outlook in a second Trump administration and it’s probably why Elon Musk is donating heavily to Trump; he’s hoping he could change Trump’s mind on EVs.
The election is still many months away and it’s a complete toss-up up who will win, but the big money is moving and jockeying for positions, both in the market and behind Trump.
What is an investor to do? The only thing you can do right now is watch and make preparations. I’m watching the Dow Jones ETF (DIA) for clues and the chart might be flashing something interesting. We had an all-time high and breakout last week during the RNC.
Granted, there was a bit of a pullback on Thursday and Friday, but I’ll be watching this ETF over the summer as well as the Semiconductor ETF (SMH) and Nvidia for clues.
If we see the Semiconductors start underperforming the Dow Jones, then we’ll have our answer and know how to rotate our holdings appropriately. Until then, keep your eyes peeled, your stops tight, and your powder dry.
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