The Week Ahead

Here we go again. Following two violent moves lower Thursday and Friday, futures opened Sunday night deeply in the red. SPX futures are lower by about -4%. We’ll see what sort of sentiment carries over to tomorrow’s open but for now it’s picking up right where we left off. We’ll get into some of the catalysts this week, but first, a recap of some of the stories from over the weekend:

Over the Weekend:

• Nations Strategize Before Week of Rising Trump Tariffs (WSJ Live Updates)

  • While some 50 countries have reached out to the White House to start negotiations on tariffs, Commerce Secretary Howard Lutnick said on Sunday that the levies won't be postponed.

• China Wanted to Negotiate With Trump. Now It’s Arming for Another Trade War. (WSJ)

  • Communication between Washington and Beijing is at a standstill, raising the prospects of a long cycle of tariff retaliation. ‘Trump and Xi are locked in a paradox of pressure and pride.’

• Yen, Swiss Franc Rally as Traders Seek Havens on Tariff Defiance (Bloomberg)

  • The Japanese yen and Swiss franc strengthened Monday as traders sought havens after US officials expressed their defiance over trade tariffs and indicated negotiations for any rate reductions will be prolonged.

• Trump’s tariffs were expected to boost the dollar, but recession fears are dragging it down (CNBC)

  • The Wall Street conventional wisdom in November was that President-elect Donald Trump’s tariff plans would boost the U.S. dollar. Instead, with the tariffs in place, worries about an impending recession have overwhelmed any positive benefit for the greenback.

• Bitcoin drops Sunday evening as cryptocurrencies join global market rout (CNBC)

  • It’s off its January all-time high by about 34%. The flagship cryptocurrency usually trades like a big tech stock and is often viewed by traders as a leading indicator of market sentiment, but last week it bucked the broader market meltdown

• Tesla Bull Slashes Stock Price Target 43%, Citing Musk and Trump (Bloomberg)

  • One of Wall Street’s most bullish Tesla Inc. analysts slashed his price target for the stock by 43%, citing a brand crisis created by Chief Executive Officer Elon Musk and US President Donald Trump’s trade policies.“ Tesla has essentially become a political symbol globally,” Daniel Ives, a Wedbush Securities analyst who’s rated the carmaker’s shares a buy for the last four years, wrote in a report to clients Sunday. “It is time for Musk to step up, read the room, and be a leader in this time of uncertainty.”

Thursday and Friday’s routs but a new twist on what had been a fairly orderly sell-off for the first -10%. If the sell-off in futures Sunday night proves correct into Monday we’re likely to see equities down -20% from recent highs, with the majority of that move happening in just the past few days.

We enter the week with implied volatility at panic levels and another gap lower will add to that. Here are the expected moves for the week based on Friday’s option closing prices:

This Week’s Expected Moves:

• SPX/SPY: 6% (4775-5375)

  • QQQ: 6%

  • IWM: 6.5%

  • TLT: 2%

  • USO: 5%

A 6% weekly expected move is one of the highest you’ll ever see. These weekly expected moves are based upon 50+ IV in short duration options. Another gap lower on the open tomorrow is likely to stretch these IVs even higher, above 60. Any subsequent bounce would compress them quickly, closer to 35.

It goes without saying that trading in an environment like this is extremely difficult due to low liquidity, rapidly changing prices, and extremely wide bid/ask spreads on both equities and options. Be very careful out there. In equities, fills could be slow or non existent. Trading systems may have outages and data delays. It’s days like this where having a plan on potential transactions ahead of time can be very important. Another rule of thumb is to not let wild swings get you off-sides chasing. There will be times when you simply don’t get filled. Compounding that frustration by chasing a stock or an option for dollars in the other direction will often result in an entry you never wanted. It’s easier said than done, but stick to your prices and let the market come to you for fills.

The economic calendar is slow to start the week but ends with a flurry of inflation data with CPI and PPI as well as the latest update on Consumer Sentiment.

Economic Calendar: 

• Wednesday: 

  • 2pm - FOMC Minutes

• Thursday:

  • 8:30am -CPI

  • 8:30am - Initial Jobless Claims

  • 12pm - Fed Goolsbee Speech

  • 12:30pm - Fed Harkin Speech

• Friday:

  • 8:30am - PPI

  • 10am - UofM Consumer Sentiment

Believe it or not, earnings season begins late this week with some of the big banks beginning to report Friday morning. Note the expected moves in the 8-9% range. That is typically 3-4% for those names:

Earnings (with expected moves):

• Monday

  • After hours LEVI 10%

• Wednesday

  • Premarket: DAL 12%

  • After hours: STZ 8.5%

  Thursday

  • Premarket: KMX 9%

• Friday

  • Premarket: JPM 8%, WFC 9%, BLK 7%, MS 9%, FAST 6%

Obviously the only thing that matters for the next few days is tariff headlines and market volatility. Should we see a down -5% move tomorrow that would take SPX down just over -20% since the recent highs and put the SPX at a very important level (4850, mentioned on MRKT Call by Carter Worth this week). That is the type of important technical level that could serve as support and potentially an area that sees a sharp bounce.

We’ll have continuing coverage all week of the “markets in turmoil”, the latest tariff news, market analysis and of course send your questions and we’ll try to get to them on air!

We want to hear your feedback! Reply to this email with any comments or questions