Good day everyone! Let me write a few words about the markets.
A week is over, which should have been interesting in terms of volatility (US elections, intrigue with uncertain voting results, Fed rate and employment data). All week, of course, Trump-Biden was in all the news, but we saw that the market began to unfold already on November 2, laying a positive under any election result.
On Monday morning, futures for the S & P500 and Nasdaq are “green” (and the Russian market also opened with an increase) – apparently, the idea of Biden’s victory is still liked by the market, although many analysts expected a collapse if Trump was not re-elected.
Volatility (VIX), of course, collapsed from 40 to 24 (it looks like my Facebook mantra “I We Vix 60” didn’t work). An interesting point – it seems that the possible victory of Trump was assessed by the market as a tense moment: representatives of BLM would take to the street and real riots on the streets could begin. Now we do not see this – supporters of the Democrats are organizing victorious marches, and near Trump Tower is empty and no one protests: the “level of fear” has quietly dropped to the lows of October (and this, most likely, is not the limit). The market is interesting because you never know what exactly he will perceive as positive)
Therefore, the trends of 2020 have a chance to continue – here both the pressure on the dollar and the rise in FAANG shares.
But something else is interesting – on this wave of positive everything jumped, including light oil futures, and there was a noticeable split between XLE and CL (XLE is an ETF that repeats the dynamics of energy companies’ stock prices, and CL is light oil futures if someone does not remember ).
Oil futures, on the one hand, is under pressure from reduced demand (and if the new administration introduces tightening due to the coronavirus, this will add pressure), on the other hand, it is an “anti-inflation play” option, like gold, copper and other assets (its the rise reflects the general trend of the commodity market to grow in the face of a decline in the dollar and a possible rise in inflation).
Therefore, the position of oil is vulnerable: if there is an increase in volatility throughout the market (for any reason), then oil prices will be especially painful, since the rise of the dollar will remove the anti-inflationary game on oil from the field of expectations and supply-demand will come to the fore – here the slide can snap shut.
The net position of commercial traders in COT reports for Crude oil is somewhere close to the lows (usually this does not happen before the asset rally). As a result, I would keep my finger on the pulse of oil and look for short entry points (I wonder if there will be new negative prices?)