The Zigmont Report (Daily Market Recap for 5/7/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own

Momentum switch.  The morning and midday was bullish.  Headlines were thin and so was volume.  Capital flow was very light at 81% today and after last week’s late, but sizeable, rally, it seemed that tape-chasing was the play of the day.  The S&P was 20 handles higher around 2:30 PM.

Then President Trump revealed that he would announce his Iran decision tomorrow at 2 PM.  The S&P began to drop from that point.  Oil dropped too.  Treasuries rallied small.  Interestingly, the Dollar didn’t move much in response though.  The S&P finished with a modest gain.

Maybe equity investors were hoping the Iran decision would be perpetually deferred or something because they sure didn’t like this announcement intraday.  I can only *assume* that the equity market expects Trump to pull out of the deal and that the subsequent consequences will inject risk into the equity environment.

However the oil market said something different about the pending decision.  Oil prices fell on the news, suggesting increased supply expectations (and lower geo-political tension).  Why would the oil market expect more oil just because Trump is announcing the Iran deal decision tomorrow?

I can speculate of course but what I come up with isn’t worth the electrons I’m typing with.

If you have a good explanation for why oil markets think Trump’s decision is supply-increasing/risk-reducing…. Let me know.

Anyway, today (while a bit confusing) was *very* similar to past trading sessions for these reasons:

  • Activity was light
  • Intraday momentum fed on itself then reversed abruptly
  • News was uninteresting and the key news of the day was ambiguous

My point is that while today has a unique event to scratch our heads over, the nature of the market’s activity is similar to the last few weeks.

I think we’re still in the bullish/bearish limbo and that the environment continues to be one with larger-swings within a trading range.

See you tomorrow,