The S&P 500 has completed a 5% peak-to-trough decline, something that typically happens about 3 times in any given year. As a result, the market has set a new lower low, which for many market participants could shift the daily trend to bearish.
THIS POST IN SPANISH: https://substack.com/home/post/p-202097570
https://x.com/MarioRandholm/status/2066450736657907747
The main argument for the bears from here on out is to form a lower high (below the ATH) to maintain the bearish trend. That would look like a classic head-and-shoulders pattern. However, on higher time frames, you’ll notice a weekly hammer with a long lower wick. See the X chart above.
SUMMARY:
- S&P 500 — The 5% correction and the weekly hammer at 732.25 as a key level
- Let the oil flow! — The agreement with Iran and the expected macro cascade (Hormuz → crude → inflation → rates → multiples)
- Warsh takes the helm — Wednesday’s Fed meeting with >98% probability of a pause
- Oracle — Beat on everything but fell after announcing $40B in new debt and negative FCF
- SpaceX IPO — Solid debut, options listing on Tuesday, risk management rules included
OIL: Let the oil flow!
Since Sunday, there has been an official agreement to end the war with Iran, announced by President Trump on Truth Social and backed by Pakistani Prime Minister Shehbaz Sharif. Trump’s post ended with the comment “Let the oil flow!”, which caused /ES futures to open higher and /CL to open lower at 6 pm EST. The idea is the following cascade:
TARGET: $75
- Crude oil should fall with the reopening of the Strait of Hormuz.
- Inflation expectations should fall with cheaper crude.
- Lower inflation expectations should allow interest rates to decline.
- Lower rates lead to multiple expansion (higher forward P/E).
Oil has been pricing in de-escalation for months, but today’s agreement accelerates it. The path back to the unaffected price won’t be linear, as war-risk insurance premiums don’t fully unwind after a conflict like this.
The drop in energy pushes June CPI below May’s 4.2% peak, it’s likely the Fed will stay on pause and rate-hike fears will be set aside. Energy was responsible for 60% of May’s monthly increase.
FED: Warsh takes the helm
Wednesday’s rate decision is not the main event… it rarely is.
Markets are pricing almost no change in the rate — approximately 98% probability. And let’s remember that in the last three meetings, a pause has been the status quo. No one expects Warsh to come in on his first meeting and make an adjustment.
Instead, if markets view Warsh as neutral, or the war as disinflationary, the door opens to more rate-cut expectations than were priced in at the beginning of the year.
The bears have not achieved their goal. Once again, another gap up has occurred. Now we’ll see what happens and how long it takes us to reach new highs this week, if they form.Remember, I’m not here to speculate or guess. I base myself on price action and the behavior of other participants to define a positive expected value risk-reward that supports my investment decisions.
Best regards,
Mario
