Bubbles Popping?

1) BUBBLES – The U.S. market has mainly been held back by the popping of bubbles this year.  Every time a major asset rises senselessly and then crashes, it sends waves through other parts of the market.  After the healthy corrections in silver, copper, and Bitcoin, EWY (South Korea’s stock market proxy ETF) looks like it was the last one to go.  The KOSPI – South Korea’s stock market – was down 12% yesterday.  All in all, these micro bubble pops should be viewed as a net positive. 

2) ENERGY – Yesterday, the exchange-traded fund XLE (Energy Select Sector ETF) printed the biggest volume of the entire move right at the highs.  This may seem counterintuitive, but that usually means smart money selling into strength while late buyers chase the headlines.  Oil can still spike if something gets bombed, but energy stocks might already be telling you the war trade is getting closer to the end.  Iran is being degraded day by day.  As always, ignore the headlines and stick to the facts.  Iranian missiles fired: Day 1 ~300+; Day 2 ~200; Day 3 ~100+; Day 4 ~50.  Meanwhile, the Israeli stock market is up ~5% since the start of the operation.  All the major powers have an incentive to keep the Strait of Hormuz open.  A solution will come.  Oil markets will likely be flooded again, giving me some caution on oil prices.  Iran lost its navy, air defense, and ~70% of its rocket launchers.  At the end of the day, Iran prepared for this attack for months.  If they had any aces up their sleeve, they would have used them by now.  I doubt their leadership said: “Let’s wait until our top military brass, our navy, and our supreme leader are eliminated… then we’ll surprise them.”  What you’re seeing now is fanatic zeal facing the greatest concentration of air bombing the world has ever seen.  Ignore the noisy headlines. Additionally, who is really hurt by impacting Iran's oil exports?

3) VIX – Volatility is still elevated, but it would not surprise me to see VIX below 19 in the coming weeks.  The two things to look for near a market bottom are the S&P 500 opening very low and recovering and VIX going from green to red.  Does that setup “guarantee” a bottom?  No, but it usually marks a good spot to be a buyer.  Yesterday, the S&P 500 opened up at 6,800, dropped to 6,710, then recovered to close above the open at 6,816.  VIX opened at 24.57, then closed at 23.56 and is down at 22.29 now.  I don’t know what volatility will do over the next days or weeks, but the setup for the next six months looks very constructive.