The historical gains and losses around the U.S. stock market “triple witching day” (the three major monthly expiration events), show that the probability of rising on the 5 days before the event is 65%. After triple witching day, the probability of falling over the next 5 days is still relatively high.
The logic behind the recent selloff in the U.S. stock market hasn’t been resolved yet, and the chain of reasoning hasn’t been broken.
Rising oil prices → inflation expectations return → the Fed keeps interest rates high → the 10-year yield breaks above 5% → tech stocks get hit via valuation compression.
Although the market rose sharply yesterday, I’m still relatively cautious. I took some profits on certain options that I had previously bought for short-term dips, and I didn’t adjust the underlying spot holdings. This rally may also be related to short covering and passive buying of spot via option hedging.
Whether the upside can be sustained depends on the next four things:
1. Whether the S&P can continue to hold above 7,625, rather than spiking up one day and then falling back again.
2. Whether the equal-weight index and small-cap stocks can keep up; financials and cyclical sectors can’t be absent for the long term.
3. Whether the 10-year U.S. Treasury yield can stay below 5%, and whether it doesn’t quickly surge again within the next two weeks.
4. Whether Brent crude oil can remain stable around $105 (or lower), rather than surging back toward $110.
The logic behind the recent selloff in the U.S. stock market hasn’t been resolved yet, and the chain of reasoning hasn’t been broken.
Rising oil prices → inflation expectations return → the Fed keeps interest rates high → the 10-year yield breaks above 5% → tech stocks get hit via valuation compression.
Although the market rose sharply yesterday, I’m still relatively cautious. I took some profits on certain options that I had previously bought for short-term dips, and I didn’t adjust the underlying spot holdings. This rally may also be related to short covering and passive buying of spot via option hedging.
Whether the upside can be sustained depends on the next four things:
1. Whether the S&P can continue to hold above 7,625, rather than spiking up one day and then falling back again.
2. Whether the equal-weight index and small-cap stocks can keep up; financials and cyclical sectors can’t be absent for the long term.
3. Whether the 10-year U.S. Treasury yield can stay below 5%, and whether it doesn’t quickly surge again within the next two weeks.
4. Whether Brent crude oil can remain stable around $105 (or lower), rather than surging back toward $110.
