The S&P 500 had a small dip at the start of the session but bounced back, showing some growth. However, the absence of technology stocks in this recovery raises concerns. Energy is one of the top-performing sectors, but its strength isn’t a good long-term sign for the stock market. Right now, the market seems defensive, and a pullback could happen, although we don’t know when. In other markets, Australia’s unemployment rate is projected to fall. The EUR/USD exchange rate remains stable just below 1.16 as traders wait for updates on the US shutdown and Federal Reserve policies.

Dow Jones and Gold Performance

The Dow Jones reached a new all-time high, boosted by banking and healthcare stocks. Gold is nearing the $4,200 mark due to a weak dollar and low yields. Bitcoin is trading above $104,000, with altcoins also gaining ground. European markets are optimistic, although the FTSE 100 is slightly down. Sui (SUI) has rebounded, trading above $2.00 after a prior correction. Despite challenges in the market, there is a sense of hope, especially with news about US government funding developments. The S&P 500 had a chance to ease back but continued to climb. However, the tech sector isn’t keeping up; the Nasdaq 100 has only risen 0.5% in the past month, while the S&P 500 has gained nearly 3%. This split is a warning sign, reminding us of patterns before market drops in 2022. The focus on energy leadership also raises concerns for the rally’s long-term viability. The Energy Select Sector SPDR Fund (XLE) has jumped over 8% recently, driven by WTI crude prices exceeding $105 per barrel due to growing geopolitical tensions. This indicates that the market is reacting to inflation fears rather than strong economic growth.

Derivative Trading Strategies

For derivative traders, caution is advised instead of jumping into the market with long calls. The CBOE Volatility Index (VIX) is around a low 19, making protective put options relatively affordable. We suggest buying bearish put spreads on the QQQ, which tracks the struggling tech sector, as they could provide a good risk-reward balance in the coming weeks. The market appears defensively positioned and vulnerable to a pullback, especially since the October CPI report revealed higher inflation at 3.8% than expected. This makes it more likely that the Federal Reserve will keep its tough stance into the December meeting. Therefore, traders should monitor the 10-year Treasury yields for potential spikes, which could trigger a market pullback. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now