Hey trader,
As I write this, overnight futures have opened and frankly they don’t look that bad. US equities are off between half a percent and one percent. Not great, but it’s not like markets are limit down. Keep that in mind as you read this in the morning.
There aren’t a lot of reasons for US markets to sell off hard here. From an equity standpoint, defense, energy, and even names like Palantir (PLTR) should be looked at as winners. There will be selling of broad market indexes, but I don’t think it’s going to be overly dramatic. If this drags on and the US stays involved, markets could deteriorate slowly. Any “shock” selling should be mostly over by the end of the day Monday.
Oil’s Pop Has a Short Shelf Life
Other markets are going to behave differently. As Tim and I discussed during the State of the Market Show, oil already had a 10-point premium. On the open at the NYMEX, crude was limit up. It has since pulled back a touch, but light sweet crude is now over 70 bucks a barrel for the first time since July of 2025. Like the other times it’s been over 70 in the last year, I expect this to be short lived, unless this becomes protracted.
When there is uncertainty, certain assets almost unilaterally win: bonds, precious metals, and the dollar. The dollar hasn’t exactly been well loved lately, so it’s not a huge surprise we aren’t seeing a huge bid there. Gold and silver are up, as are bonds.
(You can hear more from Tim by joining his free letter at this link.)
What Happens Next
I think we could have seen the top on oil potentially overnight, though I’m almost certain it will be higher at the 2 PM close on Monday. As the shock of what happened over the weekend wears off and/or there is a ceasefire, the market will move on to other things: AI, private credit, and crypto.
Crypto in particular looks weak. The fact that Bitcoin (BTC) can’t catch a bid when the US attacks someone should kill the idea that this is a store of wealth. It’s not. It’s a risk asset. Dropping rates might help the credit area, but likely not enough if the companies they’re exposed to continue to get murdered.
If this becomes protracted, energy prices will start to reflate after they come off sometime midweek. That will put a drag on the market as a whole because higher oil increases the price of literally everything. What already looks like a soft market becomes softer. The problems that are already here, credit, AI, and others, are going to be even more glaring.
The VIX Trade and Your Playbook
One thing I feel pretty confident about: if I sell the VIX at the end of the day Monday and buy it back Thursday midday, I’m almost certainly going to make money. Historically, war lowers market volatility drastically, especially after the initial pop.
With everything flying up and down, the best approach is the zero and one DTE approach. Trade today and tomorrow. Maybe dial back on some other strategies because the market is telling us to trade what is in front of you, not what you think should be or might be next week. Shorter duration is the play.