The DJIA rose in overnight and premarket trade, helped by a rebound in semiconductors and weaker crude, but the move faded as the session wore on. From a peak near 51,250, the index dropped about 820 points to roughly 50,450, then stabilised around 50,500, turning the day into a near round trip and underscoring how the Dow can still be pulled lower when market leadership falters elsewhere.
Chip-linked risk appetite cooled after the major semiconductor ETF fell close to 4%, reversing part of Monday’s near 6% jump that followed last Friday’s sharp sell-off. West Texas Intermediate slid about 4% to below $90 a barrel after US officials pointed to increased Strait of Hormuz shipping traffic, while President Trump said a US-Iran deal could come within days; existing home sales rose 3.2% month on month. Attention then shifted to inflation and supply: May CPI is forecast at 4.2% YoY versus 3.8%, with a 0.5% monthly gain and core at about 2.9%, ahead of PPI on Thursday and the University of Michigan survey on Friday, as OpenAI filed confidentially for an IPO and SpaceX is slated for a float on Friday at a valuation above $1.75 trillion.
Market Conviction Fades, Risk Appetite Dims
We are seeing clear signs that the market’s recent bounce lacks conviction, with the Dow Jones failing to hold its highs. This failed rally is a warning sign, suggesting that buying upside call options right now is a high-risk move. The path of least resistance appears to be to the downside until a significant positive catalyst emerges.
The semiconductor sector’s weakness is a major red flag, as it has been leading the market for months. The CBOE Volatility Index, or VIX, has climbed back over 18 this week, reflecting rising fear and making put options more valuable. We are using this as an opportunity to hedge by buying protection on our tech-heavy positions, as they are most vulnerable in a downturn.
Inflation, IPOs, and Cautious Positioning
All eyes are on tomorrow’s May CPI report, which is expected to show inflation heating up again to 4.2%. After the last jobs report showed stubbornly high wage growth of 4.5%, another hot inflation print would make a July Fed rate hike a near certainty. Consequently, we are positioned defensively, considering strategies like put spreads on the S&P 500 to guard against a negative market reaction.
The enormous IPOs from SpaceX and OpenAI are creating whispers of a market top, similar to the flood of tech offerings we saw back in late 1999. While these are groundbreaking companies, this much supply hitting the market at once can soak up liquidity and often signals peak investor enthusiasm. This reinforces our view that now is a time for caution, not for chasing new highs.
It is particularly concerning that the market completely ignored the good news of crude oil prices falling below $90 a barrel. This tells us that traders are far more worried about hawkish Fed policy than they are about the benefits of lower energy costs. This focus on interest rates makes long positions in economically sensitive sectors very vulnerable right now.
For the coming weeks, we are watching the 50,450 level on the DJIA as a critical support line. A break below that would likely trigger a wave of selling, and we would look to add to bearish positions with a target near the 50-day moving average around 49,650. Until the market can decisively push and hold above 51,400, we feel selling into any rallies is the smarter trade.
