Market Breadth And Late Day Selling
The tech-to-S&P 500 ratio suggested a short-term counter-trend rise, but the last two hours brought steady selling as market breadth weakened. The US dollar did not need to rise for this move to occur. Markets have largely priced Iran’s tensions as contained and short-lived. This is reflected in oil futures backwardation, with late summer contracts priced mildly while only front-month contracts rose. Gold did not surge, even as rate cut expectations increased. The view in markets remains that the conflict will end soon, despite limited evidence, with attention also turning to midterms and upcoming inflation after earlier falls in oil and petrol prices. Given the market’s failure to hold its rebound after the disappointing jobs report, volatility is the main takeaway. We see Friday’s report of only 95,000 jobs added as a clear sign of economic slowing, even if it fuels bets on rate cuts. This uncertainty suggests buying protective puts on the SPY for the coming weeks, as the late-day sell-off showed conviction is weak. The split between tech and the broader market is a key area to trade. The Nasdaq 100 has outperformed the S&P 500 by over 3% since the start of March 2026, driven entirely by hopes for lower rates. This divergence allows for strategies like buying call options on the QQQ while hedging with puts on more economically sensitive sectors like financials (XLF).Iran Risk And Oil Market Hedging
We believe the market is dangerously complacent about the conflict in Iran, treating it as a short-term issue. The deep backwardation in oil futures, with Brent’s front-month contract above $95 while December contracts lag near $82, shows this mispricing of risk. This makes long-dated call options on oil ETFs like USO a compelling hedge against a prolonged conflict. Rising energy prices will directly challenge the very rate cuts the market is now banking on, creating a difficult environment for the Fed. We saw a similar situation in 2022, when persistent inflation forced policymakers to become more aggressive than initially expected. Puts on Treasury bond ETFs such as TLT could perform well if upcoming inflation data surprises to the upside. The market appears to be waiting for a clear de-escalation signal, much like the 90-day tariff pause we experienced in late 2025. The CBOE Volatility Index (VIX) remains elevated above 20, showing that traders are still pricing in the potential for a sharp move. Until that catalyst arrives, using straddles on major indices could be an effective way to trade the building tension. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
