Market Update 04/13/2025
Our government economic policies are recking havoc in the markets. S&P 500 sold off nearly 20% from the all-time highs before rebounding. There is too much uncertainty, and the economy is clearly slowing down. Normally when the market anticipates a recession, the risky assets (stocks) decline and the safe haven assets (bonds) go up. This is not the case this time. Bonds are selling off as well. This is a bad sign. US Treasuries are the most trustworthy investments in the world because investors have always trusted the US to pay its debt. But our government has managed to upset most of the world and in return, foreign investors and most importantly foreign governments are beginning to sell US bonds. The most dangerous development in finance is the unstable bond market and if this continues, we are in for a rough ride in the future.
There is a Bull Market Somewhere
There is one asset class which is striving during this economic and market mess we are in right now. And this is Gold and other metals.
Gold is up over 20% year to date and now going almost parabolic. Rightfully so! Investors are looking for places to park their money and precious metals represent true safety. The only thing that can stop this is a resolution of the tariff mess we created.
Our managed accounts in natural resource stocks are up 34% this year. We are just long stocks.
Trade
We think that the stocks are only in the beginning stages of a bear market. The initial sell-off is over and we are in the middle of a bounce or a volatile consolidation before we head back down.
The chart above of SPY (S&P 500 ETF) shows a steep decline from 610 to 480. Note the resistance zone between 550 (prior short-term lows) and 570 (50- and 200-day moving averages). If the bounce continues, we believe it will not exceed those levels. There is only one question in our minds: are we going to go back down immediately or spend a few days/weeks bouncing a bit further. The probability is really high that SPY will retest and break the recent low.
Volatility is extremely high. VIX went all the way up to 60 before coming down to 30s and 40s, which is still extremely high from a historic perspective. Therefor the options are very expensive. We would like to have bearish exposure via options, but instead of buying expensive puts, we will be scaling into bearish put spreads. Our target is back down to 480 or lower regardless of where the bounce ends.
We will buy SPY May 30th 530 Puts and sell May 30th 480 Put for a debit of 11.50
Maximum Risk: $1,150
Maximum reward $3,850
Have a Profitable Week.
Dennis Leontyev
