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Markets are yet again starting the week on a risk-off note.
The US launched its latest wave of attacks on Iran, as both sides dispute whether the Strait of Hormuz is truly open to tanker traffic.
At the time of writing:
For proper context, today’s moves have been relatively limited so far.
And as noted in our July 8th Market Pulse report (initially published on March 1st - at the onset of the Iran war):
Geopolitical risk premiums are often swiftly faded out, but prolonged conflict may spell more volatility
Even as the Middle East conflict warrants constant vigilance, this week’s scheduled macro events could add to the overall market volatility, while potentially producing outsized trading opportunities.
Key Events This Week: Tumultuous Tuesday?
Beyond the ongoing conflict, there’s a trio of high-impact events that could trigger volatility across asset classes this Tuesday, July 14:
JPMorgan earnings
US June inflation data release (CPI: consumer price index)
Fed Chair Kevin Warsh’s testimony before Congress
3 Assets to Watch (July 13-17)
1) Brent Oil to pare Iran war gains once more?
Back on July 8th, we’d reminded traders and investors to “watch oil prices in the immediate term”, amid the ever-fluid Middle East conflict.
Traders would also note that, despite the latest escalation, Brent oil has been resisted (prevented from moving higher) by its 200-day simple moving average (SMA) – a widely followed technical indicator – and also resisted around the psychologically-important $79.00 level.
POTENTIAL SCENARIOS
UPSIDE: A major escalation in the Iran war that prolongs the tanker traffic gridlock in the Strait of Hormuz could see Brent punching above its 200-day SMA and trying to reclaim the $86/bbl mark.
DOWNSIDE: Should the Middle East conflict de-escalate once more, and the US and Iran can return to the negotiating table, that could see Brent unwind its 8.6% in post-war gains and return to the psychological $70/bbl mark once more.
2) JPMorgan stocks to hit new record high?
JPMorgan is set to release its latest quarterly earnings before US markets open tomorrow (Tue, July 14th).
Why is this important for markets?
JPMorgan is the biggest bank in the biggest economy in the world.
Hence, its earnings are referred to as a barometer on the health of the overall US economy.
Markets now predict that JPMorgan’s share prices could rise/fall over 3% after its earnings release on Tuesday, July 14th.
POTENTIAL SCENARIOS
UPSIDE: JPMorgan could set a new record high if the bank reports stronger-than-expected earnings amid a conducive backdrop for risk assets such as stocks.
DOWNSIDE: JPMorgan shares could re-test support around the $326 psychological level - as it did in the second half of June through July 1st, if markets are left disappointed by the incoming results and earnings outlook provided by the largest US bank.
Also, JPMorgan’s stocks account for 3.8% for the Dow Jones Industrial Average, which brings us to the final asset to watch this week …
3) DJ30 index to also hit new record high?
If you think most major assets’ price charts – gold, stocks, cryptos, etc. – have only been pointing south, think again.
ICYMI: The DJ30 index just hit a fresh record high (intraday prices) last Tuesday, July 7th!
Even today (Mon, July 13th), as other risk assets pull back, the DJ30 is exhibiting a relatively muted response – down just 0.15% – to the latest flare up in the Iran war.
NOTE: Bybit’s DJ30 index tracks the Dow Jones Industrial Average.
Here’s what new traders need to know about a stock index:
What is a stock index?
Imagine a stock index as a basket of stocks.
The DJ30 “basket” contains 30 big-name companies in the US such as Nvidia, Apple, McDonald’s, Visa, Walmart, Coca-Cola, and other industry giants!
What moves the index’s price?
The index tracks the overall performance of its collection of stocks.
The index’s price rises should its stock members also rise, and falls if its members fall collectively.
Why trade a stock index?
Often, traders may be faced with too many choices.
For instance, this week features earnings results out of:
July 14th: Goldman Sachs (11.9% weightage on DJ30)
July 14th: JPMorgan (3.8% weightage on DJ30)
July 15th: Johnson & Johnson (2.9% weightage on DJ30)
July 16th: UnitedHealth Group (4.8% weightage on DJ30)
July 17th: Travellers Cos (3.8% weightage on DJ30)
Hence, a stock index offers the opportunity to take advantage of post-earnings price moves, without having to risk all of the capital into 1 specific stock.
In short, an index lets traders diversify and lowers concentration risks.
However, the trade off is that an index’s price moves tend to be smaller relative to a single stock.
POTENTIAL SCENARIOS
UPSIDE: The DJ30 index could post a new record high if US earnings season kicks off with better-than-expected results, while geopolitical fears can subside.
DOWNSIDE: The DJ30 index may break below its 21-day simple moving average (SMA) and re-test the 51,600 support zone (early-June cycle high’s resistance and mid-June support) if US earnings season kicks off on a dour note, while market’s appetite for riskier assets is further eroded by rising geopolitical tensions.
DISCLAIMER:
This article is provided for general information and reflects the author’s views only. It does not constitute investment advice, nor an offer or solicitation to buy or sell any financial instruments or digital assets. Your ability to access or use any products or services mentioned may be subject to the laws and regulatory requirements of your jurisdiction.
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