To The Moon

Last week’s October nonfarm payrolls report came in below market expectations overall, providing a sharp contrast to September’s exceptionally strong reading. According to the CME FedWatch Tool, the market now puts the probability of a rate hike at the Federal Reserve’s October meeting below 30%. The probability of two hikes by December has also fallen from 60% to less than 20%, suggesting that the market is gradually coming around to a more moderate Fed rate-hike path. Attention will therefore shift back to U.S.–Iran talks and developments around the U.S. midterm elections. Financial markets may subsequently price in their expectations for the election outcome. If Trump’s Republican Party falls behind, pressure on the Fed to cut rates could ease, which may be unfavorable for rate-sensitive financial instruments.

U.S. Stock Indexes Remain Strong: Keep Watching Trend Indicators

As I have stressed before, U.S. stock indexes have been the most stable ahead of the midterms, which aligns closely with the needs of the party in power before an election. Notably, among the major U.S. stock indexes, the Nasdaq remains the market leader. The S&P 500 and the Dow have increasingly become indexes that follow its lead as investors hedge or rebalance. Investors assessing technical indicators or chart patterns for trading should therefore use the Nasdaq as their primary reference and the S&P 500 as a secondary check. Cross-checking the two can improve the usefulness of those signals. The Nasdaq’s trend remains healthy; for now, we can continue tracking it against the middle band of the weekly Bollinger Bands. On strategy, stock indexes have spent an extended period moving sideways recently, and option-selling strategies have been popular and have delivered steady returns. Investors can continue to use them while the indexes have not reversed, but should favor shorter-dated options to guard against a rapid index pullback triggered by unexpected news.

$纳指100ETF(QQQ)$ $纳斯达克(.IXIC)$ $NQ100指数主连 2612(NQmain)$ $微型NQ100指数主连 2612(MNQmain)$

Strait of Hormuz Transit Remains Elusive: Watch Lower-Volatility Opportunities in Deferred Oil Futures

U.S.–Iran talks have continued recently but have yet to make progress. Although the EU has floated the possibility of releasing oil reserves, selling reserves now would mean replenishing them later. Given current oil prices, it may therefore be better to focus on opportunities for the discount on deferred futures contracts to narrow than on short-term trades in nearby contracts. WTI crude oil futures expiring next year are generally priced more than 10% below the current spot price. If transit through the strait continues to be delayed, those deferred futures prices could move toward the spot price, generating gains for investors.

For those concerned about high oil-price volatility, another approach is the nearby-versus-deferred futures spread trade I have discussed in livestreams and in-person classes: go long the contract expiring next June and short the contract expiring next September. This creates a hedged position with lower volatility and a steadier way to follow oil prices. The spread between the two contracts is currently $3 per barrel. If oil prices keep rising, that spread could widen to more than $5 per barrel. We have also discussed the risks in class. Even if transit through the strait resumes, oil prices would be unlikely to return to pre-closure levels, so the spread may not fall very far. A three-month spread close to zero would present a good investment opportunity. The potential risks are therefore relatively clear, and investors can consider the trade in light of their own risk controls.

$美国原油ETF(USO)$ $WTI原油主连 2611(CLmain)$ $小原油主连 2611(QMmain)$ $布油现金主连 2612(BZmain)$