What to Do on a “Boring” Day

Iran Oil

As you know, market momentum went negative on Friday. Typically, this means that I’m sitting on as much cash as I possibly can. I was a goalie in soccer and lacrosse. I like to play defense more than offense. So, it’s ingrained in me to play defense in the markets as well. The question I receive the most in periods of negative momentum is this: What do I do with my cash? Well, depending on market positions, I might sell covered calls on any long-term positions I’m still holding to generate a premium. I might buy Triple Bearish ETFs or play the Volatility Index (VIX). But most of the time, I’m doing nothing. Yes, nothing.

Remember, cash is a position. And even in times when concerns about inflation are rapidly swelling, we’ve seen an interesting relationship between the S&P 500 and the U.S. Index over the last year. It seems that in negative momentum cycles, the U.S. dollar is rising, and in positive cycles, the dollar is falling. This has largely been tied to the Fed’s policy changes.

Now, you might look at the market today and think that moving to cash is missing out on buying opportunities. But if broader market momentum is negative, then I’m standing pat. What you might be witnessing is something called a Bull Trap.

This is where we see many buying on a selloff, only to see the market retreat again in the coming sessions. We enter a world of lower highs and lower lows. Effectively, the S&P 500 would enter a stepdown pattern. It’s too early to predict right now. But we want to pay very close attention to the futures market this evening.

Speaking of Futures…

Oil prices ripped higher today thanks to the rebound in the market. The question now is whether we’re going to see something go wrong. As I’ve noted, Iran wants to bring its oil back to the global markets. OPEC is willing to allow this. The Biden Administration is willing to allow this. But is Iran willing to cooperate on a deal to reduce its nuclear capacity?

Optimism is fading right now. Iran’s new president-elect Ebrahim Raisi said it would not negotiate his nation’s ballistic missile program. He also won’t meet with Joe Biden or talk about keeping proxy militias in check around the Middle East.

Iran is negotiating with the U.S. through intermediaries in Vienna, Austria, over the 2015 nuclear deal. Things are starting to look bad for the deal.

This story matters because if Iran can’t bring oil to the market or Iran is saber-rattling once again in the Middle East, oil prices are heading higher. There could be a longer-term dip if OPEC makes up the difference on crude. But we already see some immediate projections toward $100 per barrel.

I don’t think it’s going to get to those levels. But I will say that I’m very bullish on upstream energy companies in the U.S. energy patch and midstream firms that are bringing crude across the Continental U.S.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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