Yo Pit Crazies,
This week is traditionally the last week of summer.
I know it varies, but when I went to Cape Cod every summer (when my in-laws were alive), I remember Labor Day weekend as the last busy weekend of the summer.
The place was jumping.
Summer provides something a little different on Wall Street: It lets the FNG’s (Fu(*&^% New Guys) get their feet wet.
Generally, liquidity is thin and there is a slack time between the big end of July earnings and kids going back to school. For some reason, bad things happen in the Fall and I cannot put my finger on why.
My guess is it is the bad dealer positioning and low volatility in late Summer.
There’s plenty of big possibilities to position for.
Pres Trump said this weekend that he did a deal for Venezuela oil assets and he is going to bomb a minor island in the Strait of Hormuz. All the oil companies, especially Chevron Inc (CVX) who has the most experience in Venezuela gets a pop on the double.
As near as I can figure, the Dept of War has a Southern Corridor running by Oman for ships and traffic is about 20% of normal and 0% from Iran. The DoW is slowly making progress until that corridor is 100%/0%.
In the meantime oil prices and inflation will be higher and after that prices drop. And likely permanently drop which is a permanent solution to Iran.
That’s why stocks are near all time highs. If the S&P 500 Trust ETF (SPY) was $550, i’d think differently.
The plan is to permanently open the SOH so that Iran has zero sway there.
Once the SOH is open 100%, the conflict is over and the USA is in control of the SOH. Iran loses the cash to wage proxy wars. Oil will be back to $60.
Check in with me in December to see if I’m right, but this is a midterm struggle for a long term solution. I’ve said this since April and so far I’ve been right.
The Low Volatility is Here
Every Monday the VIX marks up about .80 to 1.00 depending on how big the weekend effect was.
Traders know we don’t trade on Saturday and Sunday so they lower option prices going into the weekend.
That shows up as lower VIX on Friday but reset VIX on Monday and voila, two days disappear.
On Monday, with unsettling Persian Gulf news, stocks could not hold a selloff and VIX could not hold a high. That is a bullish response to not great news. See my comments below. VIX had one of the handful of closes in the 14 handle since February.
30 day VIX
Most midterm elections are bad for stocks and start getting bad in early Sep. With all of the bad news this might be another one of those cases. Unless of course, Pres.
Trump pulls a rabbit out of his hat. VIX puts did make lows Monday. VIX puts do not make lows when stocks are about to sell off.
Hopefully this was helpful,
Andrew