Friday Chart Book

Summer Lull? I don't think so.

Just as the summer lull is about to set in, markets have suddenly been jolted by the prospect of another war on the cards. Needless to point out to you all what Oil has done over the past week, but let’s take a quick look. We have added a quick 20 bucks to the current future contract. I read of many who are trying to short Oil at the current juncture. Perhaps that’s the right trade, but implementing it may be more challenging.

The call skew is still steep, and the overall implied vol is elevated, rendering put structures also quite expensive if you are willing to play for downside, as volatility would get smashed.

Going naked short is a ballsy move, but is a risky undertaking as we are still very much uncertain whether the Donald is going to give the thumbs up for the US to get involved or indeed there are darker turns in this conflict yet still to materialise. We have a potential 2-week delay, which is likely due to some naval ships having to sail to the region. USS Nimitz, for example, is en route to the region and, according to sources, should be arriving within five to eight days. Polymarket has a June attack probability of 40%.

I think it’s probably more warranted to think about scenarios where a resolution or escalation would possibly impact other macro markets. Looking at TY 25-delta calls would indicate that a bond-positive reaction to an event is still relatively cheap to obtain, relative to recent history.

Similarly, ES 25 delta puts have crept up but are still relatively low compared to where we have seen implied volatility spike in 2022 on the onset of the Russian/Ukrainian crisis.

In other words, I am trying to identify either cheap hedges or trades that benefit from scenarios where Oil could either spike or fall dramatically from current levels. Would bonds benefit in a de-escalation? Possibly, as some of the inflation premium would have to be taken out. Similarly, an escalation still seems to be somewhat underpriced in risk assets. This is possibly due to the assumption of a quick resolution to the conflict. Wars are not a linear progression, and nothing can be excluded. My sense is I’d rather be on the safe side and hedge my risk appropriately.

This is especially the case if you are sitting on healthy YTD gains as we approach the halfway mark. The buy-and-hold 2025 portfolio is up nearly 13%, which is a great result so far. Taking some gains here would be warranted.

Another factor for derisking comes from the chart below, which shows ARK in comparison to the SPX. I can’t help but notice that the current market is supported by more speculative flows and short-covering transactions, which is symptomatic of an overall market top forming.

A few weeks ago, I asked the question: What if the US long-end yield is topping here? This came amidst a strong market narrative, with self-proclaimed bond gurus calling for long-duration treasuries to capitulate. Not much has happened, and we haven’t touched 5% since and are trading lower. Overall, the most beloved macro narratives are losing steam, and we are seeing reversals in some of the most consensus positioning over the past few trading weeks.

Powell didn’t have much to give in this week’s FOMC as we are still awaiting the next macro impulses. Meanwhile, the Swiss cut back to zero, while the Norges Bank surprised with a 25 bps cut, and the Bank of England leaned somewhat more dovishly with a 6-3 hold vote. A world is in flux, and I am as vigilant as ever to make opportunities count. Plenty are coming our way.

A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not for free and incurs an additional cost.

If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.

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Let’s now read some of Macro D’s latest thoughts on the Middle East, FOMC, BoJ, before we go through all 250+ chart setups across Rates, FX, Commodities, Crypto, Stocks, and ETFs.

Have a great weekend, everyone!