Oil prices jump after Iran says critical Strait of Hormuz to remain shut
Stocks fell sharply on Monday at the open but, as expected, snapped back throughout the day as volatility eased. The market got an extra bit of juice later in the day on headlines that the war may be over soon.
The primary problem from a bullish standpoint is that today is a settlement date of roughly $15 billion in T-bills. The stats suggest there is about a one-third chance the market rises today, while two-thirds of the time it is down on settlement dates.
It could be one of those days, I guess, where volatility overrides the settlement date, and we see a modest gain of 40 or 50 bps, but again, the analysis has held up fairly well.
From both an options and technical perspective, 6,800 is again an important level because once you get over it, the SPX index could easily return to 6,900, which is the zero gamma level.
The other issue, of course, is that the USD/JPY cross-currency basis has been moving more negative, suggesting tighter dollar liquidity conditions. This is in addition to the Treasury settlement data. So the liquidity picture, as of right now, hasn’t really changed, and in some respects it may actually be a bit worse.
Again, the cross-currency basis could widen if there is a sense that oil prices are going to stabilize or move lower, but as of right now, I don’t think anybody can really say.
Oil was obviously overbought, trading above its upper Bollinger Band with an RSI above 70, and support around the $80 mark seems fairly firm. So it could fall further, but I don’t think it will be in the $60s again anytime soon.
$80 oil is better than $100 oil, but still worse than $60, and a $20 increase in oil is still more than a 33% rise, which is not going to look good in the upcoming CPI report or at the gas station.