Will March Be The Bottom?

1.) MARCH – The month of March has been ugly for almost all assets. So far, over the last month, the S&P 500 is down about -3.8%, 20+ year Treasury Bonds are down -3.7%, Gold is down -12.4%, and Silver is down -12.8%. Meanwhile, broad-based commodities via the CRB Index are up +13.5%, much of that move caused by oil’s +24.5% ramp over the last month. All of this is due to a geopolitical “shock” in the form of war. All that said, I still think March is likely the bottom in the “Iran war cycle.” History shows markets drop fast on geopolitical shocks, then bottom within weeks and recover. Through yesterday, the S&P 500 is down -4.3% since the Feb 28 start of the war. But strip out oil, defense, and chips, and the index is down about ~-10% - the damage is already done under the surface. That’s why I lean bullish: fear is there, just not reflected in the index yet. Remember, headlines aren’t there to help you. Trump talks down oil, while Iran talks it up. Even if negotiations are happening, it is in Iran’s interest to deny them because the outcome and leverage of those negotiations are shaped by oil prices.

2.) TRANSPORTS – I’ve written in the recent past about how the transportation index needs to hold up. So far, so good, but right now, the “test” is on. The level the Dow Transport Index is coming back into is the former ceiling, after multiple failed attempts over the past few years. Bull markets need the Transports confirming, so this is important. You’ve got the companies that make the goods. Those are the Dow Industrials. And you’ve got the companies that move those goods. Those are the Dow Transports. If both aren’t working, neither is the bull market case. The Transport Index is very oversold here, not too different from what we saw last April.

3.) VOLATILITY – VIX is still elevated, but since the March 6th spikes, it has been closing at lower highs, with yesterday’s close at 26.16. The same holds true for the volatility of that volatility (VVIX). Where does it go from here? It all depends on oil and the Iran situation, which will also have an effect on interest rates. Due to that, we should expect a continued degree of higher than normal volatility. But remember, as seen yesterday, volatility can move in both directions. Markets still appear to be fairly well hedged with implied volatility back up to a 79% premium versus 60% yesterday. Hedges came off with triple witching Friday, but it looks like they’ve put them back on. That’s good for overall market structure.