Market Update 04/21/2025
We are in an economic environment where investors are confused, uncertain and conflicted. Our government policies change every day, which presents uncertainty and causes reluctance to invest. The one thing the markets hate the most is uncertainty. These conditions will not go away soon. As we discussed in our prior newsletter, it will take a while for the stock market to feel confident again and start a sustainable advance. Right now, we are in a bearish environment, which means every rally will be questioned and eventually sold. That is what we did last week – we established a bearish put spread position right at the top of the latest bounce.
The following chart of SPY (S&P 500 ETF) shows a clear resistance between 550 (prior low) and 570 (50- and 200-day moving averages). We don’t think those levels will be taken out on the upside without a clear economic picture.
The most likely outcome is a retest or break of 480. This is the target of our options trade.
Regardless of whether we are in a bear market or not, there are always opportunities for investors and traders on the upside somewhere. Just like in raging bull markets where everything goes up whether they deserve it or not, bear markets give us chances to find undervalued securities and sectors when investors throw babies with bath water.
Here is a chart of crude oil.
Crude oil declined to 57 and now trying to come back and battle the resistance level around 65. What caught our attention is the commitment of traders report showing the commercial traders (smart money) are heavily long this commodity, while small funs are short. This is bullish!
Every time the red line (smart money position) got to the current levels; the crude oil started a rally. We believe this time will be no different. We may see a bit of a consolidation before a sustained advance, but we would use this consolidation to accumulate positions in the commodity.
Also, energy stocks, which were undervalued even before the sell off are now dirt cheap and should be bought. Here is the chart of XOP (Oil and Gas exploration ETF).
We will look for further weaknesses to accumulate crude oil and energy stocks.
Dennis Leontyev
