Jim Wyckoff

Dominate Your Market

Daily Morning Report

Rising bond yields on the front burner

by

Thursday, October 19–Jim Wyckoff’s morning markets report

Asian and European stocks were mostly lower overnight. U.S. stock indexes are pointed to mixed openings when the New York day session begins. Downbeat quarterly earnings from EV maker Tesla has dampened Wall Street spirits Thursday morning.

Rising bond yields and high tensions in the Middle East are also squelching the equities market bulls late this week. Reports said Hamas is firing more missiles into Israel. This comes after an explosion at a Gaza hospital killed over 500 people earlier this week. U.S. and Israeli intelligence say the explosion was caused by Palestinian militants.

The U.S. marketplace highlight of the day Thursday is Federal Reserve Chairman Jerome Powell’s speech to the Economic Club of New York in the afternoon.

In overnight news, the big China property developer Country Garden has missed a $15.4 million debt payment on a dollar bond. The Wall Street Journal said this caps “a remarkable fall from grace for a company that was once considered among the safest developers in the country.”

The key outside markets today see the U.S. dollar index near steady. Nymex crude oil prices are lower and trading around $87.00 a barrel. The yield on the benchmark U.S. Treasury 10-year note yield is closing in on 5.0% and is presently fetching 4.96%.

U.S. economic data due for release Thursday includes the weekly jobless claims report, the Philadelphia Fed business survey, existing home sales, and leading economic indicators.

U.S. STOCK INDEXES

December S&P 500 e-mini futures: Prices are near steady in early U.S. trading. The shorter-term moving averages (4-, 9- and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Today, shorter-term technical resistance comes in at 4,400.00 and then at the October high of 4,430.50. Support for active traders is seen at the overnight low of 4,320.75 and then at 4,300.00. Wyckoff’s Intra-day Market Rating: 5.0

December Nasdaq index futures: Prices are slightly up in early U.S. trading. Shorter-term moving averages (4- 9-and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance is seen at 15,150.00 and then at this week’s high of 15,336.75. On the downside, shorter-term support is seen at the overnight low of 14,937.00 and then at 14,800.00. Wyckoff’s Intra-Day Market Rating: 5.0.

U.S. TREASURY BONDS AND NOTES FUTURES

December U.S. T-Bonds: Prices are lower and hit another contract low in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical resistance is seen at Wednesday’s high of 110 12/32 and then at Wednesday’s high of 111 17/32. Shorter-term support lies at the contract low of 108 8/32 and then at 108 even. Wyckoff’s Intra-Day Market Rating: 3.0

December U.S. T-Notes: Prices are lower and hit a contract low in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are bearish early today. Shorter-term resistance lies at 106.00.0 and then at Wednesday’s high of 106.15.5. Shorter-term technical support is seen at the overnight contract low of 105.12.5 and then at 105.00.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 3.5

EURO CURRENCY

The December Euro currency futures are slightly up in early U.S. trading. Bears are in firm overall near-term technical control. The shorter-term moving averages for the Euro are neutral early today, as the 4-day is below the 9-day and 18-day. The 9-day is even with the 18-day moving average. Short-term oscillators for the Euro are neutral early today. The Euro currency finds shorter-term technical resistance at this week’s high of 1.0622 and then at the October high of 1.0668. Shorter-term support is seen at 1.0523 and then at the October low of 1.0482. Wyckoff’s Intra Day Market Rating: 5.5

NYMEX CRUDE OIL

November Nymex crude oil prices are lower in early U.S. trading. The shorter-term moving averages are neutral early today as the 4-day is above the 9-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are neutral early today. Look for buy stops to reside just above technical resistance at the overnight high of $88.42 and then at $90.00. Look for sell stops just below technical support at the overnight low of $86.60 and then at $85.00. Wyckoff’s Intra-Day Market Rating: 4.5

GRAINS

Grain futures prices were mixed to firmer in overnight trading. Less risk appetite in the marketplace at present continues to limit the upside for the grains in the near term, although soybean and soybean meal bulls have come to life. Technicals are still overall bearish for corn, wheat and soybeans. On tap today is the weekly USDA export sales report.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission

(CFTC) has said about futures trading (and I agree 100%):

1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Jim Wyckoff

Risk aversion up-ticks at mid-week

by

Wednesday, October 18–Jim Wyckoff’s morning markets report

Asian and European stocks were mixed to weaker overnight. U.S. stock indexes are pointed to weaker openings when the New York day session begins. Risk aversion has up-ticked at mid-week after a bombing at a hospital in Gaza has reportedly killed over 500 people. Hamas blamed an Israel air strike, while Israel blamed an errant Hamas missile. Reads a Barrons headline today: “Rate fears, bond yields, war; market concern grows.”

Gold prices are sharply up and at a four-week high above $1,950 an ounce, on keener safe-haven demand after the Gaza hospital was bombed.

In overnight news, China got some mixed economic data today. China’s third-quarter GDP came in at up 4.9%, year-on-year, helped by resilient consumer spending. However, China’s third-quarter GDP came in below the second quarter’s reading of up 6.3%, year-on-year. That puts the world’s second-largest economy on course to hit an annual GDP target of around 5% for 2023, Bloomberg reported. GDP got a boost from strong retail sales in September that posted the biggest increase since May. On the downside, China property investment contraction accelerated during September. Home sales continued to decline and construction of new homes dropped almost 24% in the first nine months of the year. Funding for property development dropped 13.5%, year-on-year.

In other overnight news, the Euro zone September consumer price index rose 4.3%, year-on-year, which was right in line with market expectations.

The key outside markets today see the U.S. dollar index slightly up. Nymex crude oil prices are solidly higher and trading around $89.25 a barrel. The yield on the benchmark U.S. Treasury 10-year note yield is presently fetching 4.82%.

U.S. economic data due for release Wednesday includes the weekly MBA mortgage applications survey, the weekly DOE liquid energy stocks report, new residential construction and the monthly Treasury budget statement.

U.S. STOCK INDEXES

December S&P 500 e-mini futures: Prices are weaker in early U.S. trading. The shorter-term moving averages (4-, 9- and 18-day) are neutral early today. The 4-day moving average is even with the 9-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Today, shorter-term technical resistance comes in at the October high of 4,430.50 and then at 4,450.00. Support for active traders is seen at this week’s low of 4,354.50 and then at last week’s low of 4,299.50. Wyckoff’s Intra-day Market Rating: 4.0

December Nasdaq index futures: Prices are weaker in early U.S. trading. Shorter-term moving averages (4- 9-and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day is above the 18-day. Short-term oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical resistance is seen at this week’s high of 15,336.75 and then at the October high of 15,468.75. On the downside, shorter-term support is seen at 15,000.00 and then at 14,900.00. Wyckoff’s Intra-Day Market Rating: 4.0.

U.S. TREASURY BONDS AND NOTES FUTURES

December U.S. T-Bonds: Prices are near steady in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical resistance is seen at Tuesday’s high of 111 17/32 and then at this week’s high of 112 27/32. Shorter-term support lies at this week’s low of 109 17/32 and then at 109 even. Wyckoff’s Intra-Day Market Rating: 5.0

December U.S. T-Notes: Prices are higher in early U.S. trading after hitting a contract low overnight. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral early today. Shorter-term resistance lies at 107.00.0 and then at 107.10.0. Shorter-term technical support is seen at the overnight contract low of 106.03.0 and then at 106.00.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 5.5

EURO CURRENCY

The December Euro currency futures are slightly down in early U.S. trading. Bears are in firm overall near-term technical control. The shorter-term moving averages for the Euro are neutral early today, as the 4-day is below the 9-day and 18-day. The 9-day is even with the 18-day moving average. Short-term oscillators for the Euro are neutral early today. The Euro currency finds shorter-term technical resistance at this week’s high of 1.0622 and then at the October high of 1.0668. Shorter-term support is seen at 1.0523 and then at the October low of 1.0482. Wyckoff’s Intra Day Market Rating: 4.5

NYMEX CRUDE OIL

November Nymex crude oil prices are solidly up and hit a two-week high in early U.S. trading. The shorter-term moving averages are neutral early today as the 4-day is above the 9-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are bullish early today. Look for buy stops to reside just above technical resistance at $90.00 and then at $91.00. Look for sell stops just below technical support at the overnight low of $87.64 and then at $86.00. Wyckoff’s Intra-Day Market Rating: 7.0

GRAINS

Grain futures prices were higher in overnight trading on short covering. Less risk appetite in the marketplace at present will likely continue to limit the upside for the grains in the near term. Harvesting of soybeans and corn is past the half-way point and that has been a bearish seasonal factor amid commercial hedge selling. Technicals are still overall bearish for corn, wheat and soybeans.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission

(CFTC) has said about futures trading (and I agree 100%):

1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Jim Wyckoff

U.S. stock indexes climbing a wall of worry

by

The e-mini S&P stock index futures prices have rebounded well off the October low, but remain in a downtrend on the daily bar chart. The U.S. stock indexes have held up fairly well in the face of a major geopolitical crisis playing out in the Middle East. Prices in October have even pushed higher amid continued inflation worries and a still-hawkish U.S. Federal Reserve. Indeed, it appears the stock market traders are going to exit the historically tumultuous months of September and October without too much damage. It appears stock market traders the past couple weeks are now embracing the old adage that the equities markets like to “climb a wall of worry.” Stay tuned! Jim Wyckoff

Market participants looking to other fundamentals now

by

Tuesday, October 17–Jim Wyckoff’s morning markets report

Asian and European stocks were mostly higher overnight. U.S. stock indexes are pointed to slightly lower openings when the New York day session begins. While the Israeli-Hamas war remains near the front burner of the marketplace, there have been no major, markets-moving developments over the past week. Traders and investors are starting to focus more on other, more normal economic and business factors that are impacting the marketplace, such as economic reports, earnings reports and central bank rhetoric. But make no mistake, the Middle East conflict will not just fade away and there are likely to be markets-moving surprises develop in the coming days and weeks.

The key outside markets today see the U.S. dollar index slightly up. Nymex crude oil prices are near steady and trading around $86.50 a barrel. The yield on the benchmark U.S. Treasury 10-year note yield is presently fetching around 4.7%.

It’s a busy day for U.S. economic data releases Tuesday, including the weekly Johnson Redbook retail sales report, retail sales, industrial production and capacity utilization, the NAHB housing market index, manufacturing and trade inventories, the monthly Treasury budget statement and Treasury international capital data. Several Federal Reserve officials are also slated to speak today.

U.S. STOCK INDEXES

December S&P 500 e-mini futures: Prices are a bit weaker in early U.S. trading. The shorter-term moving averages (4-, 9- and 18-day) are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral early today. Today, shorter-term technical resistance comes in at this week’s high of 4,414.25 and then at the October high of 4,430.50. Support for active traders is seen at this week’s low of 4,354.50 and then at last week’s low of 4,299.50. Wyckoff’s Intra-day Market Rating: 4.5

December Nasdaq index futures: Prices are slightly down in early U.S. trading. Shorter-term moving averages (4- 9-and 18-day) are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance is seen at this week’s high of 15,336.75 and then at the October high of 15,468.75. On the downside, shorter-term support is seen at 15,000.00 and then at 14,900.00. Wyckoff’s Intra-Day Market Rating: 5.0.

U.S. TREASURY BONDS AND NOTES FUTURES

December U.S. T-Bonds: Prices are lower in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are neutral early today. The 4-day moving average is even with the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral to bearish early today. Shorter-term technical resistance is seen at the overnight high of 111 17/32 and then at this week’s high of 112 27/32. Shorter-term support lies at 110 even and then at 109 even. Wyckoff’s Intra-Day Market Rating: 4.0

December U.S. T-Notes: Prices are lower in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are bearish early today. The 4-day moving average is below the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are bearish early today. Shorter-term resistance lies at the overnight high of 107.08.0 and then at this week’s high of 107.22.5. Shorter-term technical support is seen at 106.20.0 and then at 106.16.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 4.0

EURO CURRENCY

The December Euro currency futures are near steady in early U.S. trading. Bears are in firm overall near-term technical control. The shorter-term moving averages for the Euro are neutral early today, as the 4-day is below the 9-day and 18-day. The 9-day is even with the 18-day moving average. Short-term oscillators for the Euro are neutral early today. The Euro currency finds shorter-term technical resistance at 1.0600 and then at the October high of 1.0668. Shorter-term support is seen at 1.0523 and then at the October low of 1.0482. Wyckoff’s Intra Day Market Rating: 5.0

NYMEX CRUDE OIL

November Nymex crude oil prices are near steady in early U.S. trading. The shorter-term moving averages are neutral early today as the 4-day is above the 9-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are neutral to bullish early today. Look for buy stops to reside just above technical resistance at this week’s high of $88.33 and then at $89.00. Look for sell stops just below technical support at $86.00 and then at $85.00. Wyckoff’s Intra-Day Market Rating: 5.0

GRAINS

Grain futures prices were mixed in overnight trading. Less risk appetite in the marketplace at present will likely continue to limit the upside for the grains in the near term. Harvesting of soybeans and corn is past the half-way point and that has been a bearish seasonal factor amid commercial hedge selling. Technicals are still overall bearish for corn, wheat and soybeans. report.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission

(CFTC) has said about futures trading (and I agree 100%):

1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Jim Wyckoff

Marketplace still uneasy Monday

by

Monday, October 16–Jim Wyckoff’s morning markets report

Asian and European stocks were mixed overnight. U.S. stock indexes are pointed to narrowly mixed openings when the New York day session begins. There were no major developments in the Middle East over the weekend that moved markets significantly. Still, risk appetite in the general marketplace remains dented as Israel appears poised for an all-out invasion of at least parts of the Gaza strip. The situation remains highly uncertain.

Marketplace focus is also on China’s economy. Broker SP Angel said today in an email dispatch that China’s yuan currency is under pressure as Chinese officials continue to move to restrict cash outflows. The “carry trade” continues to draw capital out of China and into the U.S. dollar, with a U.S.-China yield gap of 1.9% on in the 10-year government bonds. The People’s Bank of China has conducted medium-term lending facility operations of $108 billion to add liquidity to the banking system, said the broker. The PBOC kept the one-year policy loan rate unchanged at 2.5% as expected. Analysts see the moves as an effort to relieve stress on the banking sector. Meantime, property developer Evergrande’s debt sparked a bank run on the Bank of Cangzhou in Hebei province, reports said. Chinese officials are appealing for order following a crowd of people forming and looking to withdraw funds from that bank. “In many respects Evergrande and Country Garden are too big and too important to fail. We expect the Chinese state to avoid its ‘sub-prime, Lehman Bros’ moment and put in new management along with significant state support,” said SP Angel.

The U.S. political and economic situation is also not far from the front burner of the marketplace. Recent “Feds speak” may be leaning a bit less hawkish, but that’s debatable. A Wall Street Journal headline today reads “Chance of a recession ticks below 50%. A recession is no longer the consensus.” Meantime, the U.S. House of Representatives remains without a speaker.

The key outside markets today see the U.S. dollar index weaker. Nymex crude oil prices are near steady and trading around $87.75 a barrel. The yield on the benchmark U.S. Treasury 10-year note yield is presently fetching 4.689%.

U.S. economic data due for release Monday includes the Empire State manufacturing survey and Treasury monthly budget statement.

U.S. STOCK INDEXES

December S&P 500 e-mini futures: Prices are a bit firmer in early U.S. trading. The shorter-term moving averages (4-, 9- and 18-day) are neutral early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are neutral to bullish early today. Today, shorter-term technical resistance comes in at 4,400.00 and then at the October high of 4,430.50. Support for active traders is seen at 4,350.00 and then at last week’s low of 4,299.50. Wyckoff’s Intra-day Market Rating: 5.5

December Nasdaq index futures: Prices are near steady in early U.S. trading. Shorter-term moving averages (4- 9-and 18-day) are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day. Short-term oscillators (RSI, slow stochastics) are neutral early today. Shorter-term technical resistance is seen at 15,250.00 and then at Friday’s high of 15,366.75. On the downside, shorter-term support is seen at 15,000.00 and then at 14,900.00. Wyckoff’s Intra-Day Market Rating: 5.0.

U.S. TREASURY BONDS AND NOTES FUTURES

December U.S. T-Bonds: Prices are solidly lower in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are neutral early today. The 4-day moving average is above the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral early today. Shorter-term technical resistance is seen at the overnight high of 112 27/32 and then at last week’s high of 114 10/32. Shorter-term support lies at 111 even and then at last week’s low of 110 11/32. Wyckoff’s Intra-Day Market Rating: 4.0

December U.S. T-Notes: Prices are lower in early U.S. trading. Shorter-term moving averages (4- 9- 18-day) are neutral early today. The 4-day moving average is above the 9-day. The 9-day is below the 18-day moving average. Oscillators (RSI, slow stochastics) are neutral early today. Shorter-term resistance lies at the overnight high of 107.22.5 and then at 108.00.0. Shorter-term technical support is seen at 107.00.0 and then at 106.24.0. Sell stops likely reside just below those levels. Wyckoff’s Intra-Day Market Rating: 4.0

EURO CURRENCY

The December Euro currency futures are slightly up in early U.S. trading. Bears are in firm overall near-term technical control. The shorter-term moving averages for the Euro are bearish early today, as the 4-day is below the 9-day and 18-day. The 9-day is below the 18-day moving average. Short-term oscillators for the Euro are neutral early today. The Euro currency finds shorter-term technical resistance at 1.0600 and then at the October high of 1.0668. Shorter-term support is seen at 1.0500 and then at the October low of 1.0482. Wyckoff’s Intra Day Market Rating: 5.5

NYMEX CRUDE OIL

November Nymex crude oil prices are near steady in early U.S. trading. The shorter-term moving averages are neutral early today as the 4-day is above the 9-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI and slow stochastics) are neutral to bullish early today. Look for buy stops to reside just above technical resistance at $88.00 and then at $89.00. Look for sell stops just below technical support at $86.00 and then at $85.00. Wyckoff’s Intra-Day Market Rating: 5.0

GRAINS

Grain futures prices were mostly firmer in overnight trading. Keener risk aversion in the marketplace at present will likely limit the upside for the grains in the near term. Harvesting of soybeans and corn is in full swing and that is also a bearish seasonal factor amid commercial hedge selling. Technicals are still overall bearish for corn, wheat and soybeans. Due out today is the weekly USDA export inspections report.

IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any traders and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.

Here is what the Commodity Futures Trading Commission

(CFTC) has said about futures trading (and I agree 100%):

1. Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.

Jim Wyckoff

Markets in Turmoil–the options option

by

This week the general marketplace is keenly focused on the Middle East as Israel has declared war on Hamas. Many veteran market watchers, including this one, have been surprised the marketplace has not reacted more strongly to the major geopolitical crisis. The Wall Street Journal reported earlier this week that financial markets reacted more strongly to last Friday’s U.S. jobs report than they did, at least initially, to the weekend violence in the Middle East that for Israel was the worst in 50 years.

One respected CNBC commentator summed it up by saying at present the marketplace is not factoring in a further escalation in the Israel-Hamas conflict, meaning no other countries like Iran, Syria or the U.S. will become significantly involved. Many times when unexpected market shocks like this one occur, traders and investors quickly factor into market prices a worst-case outcome, on a knee-jerk reaction. Then, as the worst-case scenario does not play out, market prices begin to retrace their initial big moves. That’s not the case this time.

This veteran market watcher finds it unlikely the Israel-Hamas war will not escalate further and not significantly involve any of the aforementioned countries. To put in simply: The Middle East turmoil is likely to intensify before it de-escalates. 

One veteran stock market analyst gave his explanation for the stock and financial markets not seriously reacting (at least not yet) to the current geopolitical crisis: “The Middle East has been turbulent for generations. While the weekend violence in Israel ranks among the worst in the region and is a terrible human tragedy, it is not something new. Traders and investors have had to deal with Middle East instability and violence for decades.”

I don’t place a lot of value on that veteran stock market analyst’s comments. Reason: Human nature has indeed repeated itself throughout the history of mankind, but that does not mean the markets have not had serious reactions to major geopolitical surprises and other big events that have occurred repeatedly through civilization. These repeated occurrences still have caused major disruptions to economies, and impacted trader and investor attitudes.

So what can a trader/investor do if this present Middle East violence does escalate significantly and markets volatility increases dramatically? How can one’s present investments in stocks, bonds and commodities be protected? One way is to purchase (or sell) options on stocks and to purchase (or sell) options on stock index, financial and commodity futures markets. The speculators, who are an important liquidity-providing part of the trading marketplace, can also participate by purchasing and selling options.

In this feature I won’t address the topic of selling options, but the endeavor can be used by experienced and savvy options traders. I also won’t discuss complex options strategies. What I will address below are some simple options purchases for speculators, on the basic notion the Middle East violence will escalate in the near term, to the point of causing higher price volatility in markets and significant trader and investor anxiety in the general marketplace—at least briefly and maybe longer.

–Buy out-of-the-money call options on Comex gold and/or silver futures. Both will rally much more strongly if the Middle East situation turns hotter.

–Buy out-of-the-money call options on Nymex crude oil futures. Crude prices will spike, at least briefly, if Middle East violence worsens.

–Buy out-of-the-money call options on U.S. Treasury bond and note futures. “Flight-to-quality” buying of U.S. debt will be strong on a military escalation in the Mid-East.

–Buy out-of-the-money call options on the U.S. dollar index futures. The greenback will also see flight-to-quality demand.

–Buy out-of-the-money put options on the Euro currency futures. If the greenback rallies, the Euro currency will likely see selling pressure.

–Buy out-of-the-money put options on the U.S. stock indexes. The U.S. stock indexes would sell off sharply if crude oil spikes and investor confidence wilts rapidly on a serious escalation in the Israel-Hamas conflict.

These are just a few ideas on employing options in markets that may become more volatile.

Stay tuned! Jim Wyckoff