Yo Pit Crazies,

Today I want to walk you through a few things that might seem unrelated but actually tell the same story: geopolitics, bank earnings, oil stocks, and the VIX.

Here’s the thread that ties them together: The market is trying to figure out whether we’re heading into a period of stability or chaos, and right now the signals are mixed. Let me break it down.

The Strait of Hormuz Stays in the Headlines

This morning, news came across the tape that the US embassy in Qatar was evacuating some personnel.

I don’t know if this was a test or a shot across the bow of Iran, but it was a slight upgrade in status for the Middle East.

Here’s the reality: the Strait of Hormuz is a narrow waterway where about 20 percent of the world’s oil passes through every day.

Anytime there’s a threat of it shutting down, markets go into turmoil because traders worry about global oil supply.

If the protesters in Iran can actually kick out the ruling Islamic regime, I think that would be bullish. It would also secure the stability of Middle Eastern oil.

Earnings Are OK but Not Great

The next piece of the puzzle is earnings.

Bank earnings were OK, not great, with no real beats, nothing impressive.

JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) all posted OK earnings, and none of the stocks really did very well.

They’re all off around one percent or two percent after having what I’d only describe as a momentous fourth quarter in 2024.

The big test, of course, will be when Big Tech and the Mag Seven earnings come out at the end of the month.

Oil Stocks Are Kicking Butt

If you haven’t noticed, oil stocks are making multi-year highs. ExxonMobil (XOM), Chevron (CVX), and some of the mid-size producers and explorers are doing very well.

Look at the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which is doing very well and has considerable upside in this scenario.

And this is all while oil prices are only $60 a barrel.

My guess is the market is starting to look forward.

The fact that the Venezuelan dictator is gone and Iran could be on the ropes means that global supplies for domestic US producers could go up huge.

The opportunities to develop these oil fields and build infrastructure could be quite large. The market is bidding up oil stocks on the potential that some of these things could happen.

In the short term, it could certainly be rocky geopolitically, even for the broader market in general. But if Iran ends up like Venezuela, the big oil majors should do very well going forward.

Full disclosure: I own lots of oil stocks. I did pick up a natural gas stock, ONEOK (OKE), in Flash 7 last week.

Thank you, Frank Gregory.

VIX Made a Foray to Zone 3

The VIX (the market’s “fear gauge”) made a small move into Zone 3. It tickled the 18 handle for a while, which is our third quartile of volatility.

Although the VIX didn’t stay there at all, I closed almost all of my upside volatility calls at OK prices today, not great prices, because the VIX can’t hold Zone 3.

Generally, if you can’t hold the zone you just crossed into for at least one day, more often than not the volatility event fizzles out, which appears to be the case today.

So it wouldn’t surprise me if stocks were back to all-time highs. I mean SPDR S&P 500 ETF Trust (SPY) was back to all-time highs by Friday.

To Your Trading Success,

AG