On Friday, the S&P 500 index dropped 0.33% due to uncertainties around tariffs. Over the weekend, news of potential new tariffs on Europe caused a steep decline in S&P 500 futures. However, concerns have eased, and the index is expected to open only 0.2% lower. Now, the focus is shifting to corporate earnings, with major banks set to release their reports tomorrow. Important Consumer Price Index (CPI) data will also influence trading on Tuesday. According to last Wednesday’s AAII Investor Sentiment Survey, 41.4% of individual investors feel positive about the market, while 35.6% feel negative.

Market Movement Review

Last week, the S&P 500 closed down 0.31%, following a 1.7% increase the week before. Support is found around 6,150, while resistance is at 6,300. The Nasdaq 100 decreased by 0.21% on Friday, continuing its short-term consolidation within an uptrend. The Volatility Index (VIX) fell to 15.70 on Thursday, indicating strong markets, but rose back to 17.24 on Friday. A lower VIX suggests less market fear, while a higher VIX indicates possible upward movements. S&P 500 futures are trading near 6,300 after dipping to 6,258 due to geopolitical news. Resistance is at 6,320 and support is at 6,250. Crude oil rose by 2.82% on Friday, with further gains today, trading above $69 due to supply concerns. The S&P 500 is likely to open slightly lower amidst geopolitical tension, but there is excitement around the earnings season and CPI data. Currently, the market is in a cautious phase. This is not the time for broad predictions but for targeted, catalyst-driven investments. Anxiety over European tariffs is minor compared to the significant corporate earnings and inflation data that are approaching. For derivative traders, this environment focuses on positioning for short-term market reactions rather than long-term trends.

Key Events and Strategies

First, we must focus on the banks. Their reports kick off the earnings season, but the real insight will come from details about net interest margins versus their investment banking and trading success. This mix makes simple bets risky. Instead, we are considering straddles or strangles on important financial ETFs, aiming to profit from an unexpected price swing once the details are revealed. The stakes are high, with FactSet estimating S&P 500 earnings growth at a strong 9.0% year-over-year. Any major change from this estimate will affect the market. Also, the upcoming CPI release is one of the most crucial data points this month. After the May CPI report came in cooler than predicted at 3.3%, the market has grown hopeful for Federal Reserve action. According to the CME FedWatch Tool, futures markets now suggest nearly a 65% chance of a rate cut by September. This week’s inflation data will either confirm or challenge that prediction. A high number would drop those odds and likely lead to a decline in equity futures, making protective puts a smart, low-cost investment. A low number could strengthen the case for a September rate cut and spark a rally, favoring short-term call options. The recent increase in the VIX gives us insight. A VIX below 15 usually means complacency, but its recent rise toward 17 indicates that traders are starting to factor in upcoming uncertainty. This is a prime opportunity. Volatility is high enough to signal potential, yet option prices remain reasonable. This is the right time to buy options ahead of the earnings and CPI announcements. Historically, implied volatility tends to increase before significant events and then drops sharply afterward. This pattern suggests purchasing options now rather than holding them through a calm period. Lastly, crude oil’s recent rise, over 8% in the past month to above $81 a barrel, complicates matters. This increase creates a challenge for a cooling inflation narrative. It adds tension that reinforces our main strategy: the market is balanced precariously, and the smart choice is not to predict the direction it will take, but to be prepared to benefit from its movement. Create your live VT Markets account and start trading now.

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