The Dow Jones Industrial Average rose by more than 250 points in choppy trading, after falling as much as 300 points earlier, and moved back above 48,000. The S&P 500 and Nasdaq Composite also advanced. Crude oil fell about 10% after the International Energy Agency held an emergency meeting about releasing strategic reserves. WTI dropped to about $84 a barrel and Brent to about $88, after both had been above $100 earlier in the week, and the Strait of Hormuz remained effectively closed.

Market Signals And Risk Positioning

Caterpillar gained over 3% and Cisco rose about 1.7%, while Salesforce fell about 3%. UnitedHealth slipped about 1.7%, and IBM declined more than 2% and was down over 11% year-to-date. Existing home sales rose 1.7% month-on-month in February to 4.09 million, beating a 3.89 million estimate. January was revised to 4.02 million from 3.91 million, the 30-year fixed rate averaged about 6%, and the Housing Affordability Index rose to 117.6, the highest since March 2022. Gold rose to about $5,195 per ounce while the Dollar Index fell about 0.50% to 98.66. Silver gained about 5.5%, and the 10-year Treasury yield eased to about 4.12%. February CPI is due at 12:30 p.m. GMT, with forecasts of 0.3% m/m and 2.4% y/y for headline, and 0.2% m/m and 2.5% y/y for core. About 97% of market participants priced steady rates at the Fed’s March meeting.

Trading Ideas And Portfolio Hedges

We are seeing a relief rally in the Dow, but it is built on fragile hopes of the Iran conflict ending. The choppy trading and retest of the 48,000 level suggest uncertainty, making this a risky time to be aggressively long on index futures. We believe buying protective put options on the SPDR Dow Jones ETF (DIA) or S&P 500 ETF (SPY) is a prudent strategy to hedge against a sudden reversal if peace talks falter. The 10% plunge in crude oil is a significant move, but we should question its durability as long as the Strait of Hormuz remains closed, disrupting nearly 20% of the world’s oil supply. Historically, releases from strategic reserves, like the one coordinated by the IEA in 2011 during the Libyan civil war, provide only temporary price relief if the core geopolitical issue isn’t solved. Selling out-of-the-money put options on WTI crude could capitalize on the elevated volatility while betting that prices will not fall much further from the $84 level. Tomorrow’s CPI report is a non-event, but the real test for inflation will come with the March data. Average US gasoline prices have already jumped by over 12% since the conflict began, a surge that will not be reflected in tomorrow’s 2.4% inflation reading. This means derivatives traders should anticipate a significant inflation spike in the April and May reports, potentially forcing the Fed to reconsider its neutral stance later this year. The split between rising industrial stocks like Caterpillar and falling software stocks like Salesforce highlights a key market rotation. We see this as an opportunity for a pairs trade, going long Caterpillar call options to ride the AI data center build-out while buying puts on Salesforce, which is more vulnerable to corporations cutting budgets due to energy-driven cost pressures. The strength in industrials appears more durable than the broad market optimism. Gold’s rally to nearly $5,200 per ounce while equities are also rising is a major red flag that smart money is not buying into the peace narrative completely. This divergence signals a strong demand for safe-haven assets, and we view this as a clear indicator to maintain long positions in gold futures or options. The precious metal is acting as a reliable hedge against the significant geopolitical risk that the equity market seems to be ignoring. Create your live VT Markets account and start trading now.

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