After a 2.7% drop in the S&P 500 caused by tariff worries and a 1.3% rebound, traders are looking at the market’s stability. Monday’s session stayed within Friday’s trading range, showing a lack of direction amid recent market ups and downs.

Market Influences

The China tariff deadline on November 1 and growing concerns about the AI bubble are putting pressure on the market. Notably, the market hasn’t experienced a 6% correction since 1966. Important price levels include a close above 6,762 for a possible upward trend, while a drop below 6,550 signals potential caution in the next three weeks. Australia’s unemployment rate is expected to tick up slightly in September, with 17,000 new jobs forecast. The Dow Jones is remaining stable after earnings reports, and gold stays steady due to geopolitical tensions. Bitcoin’s recent activity hints at possible recovery, despite a 2% decline. Similarly, Lido DAO is rallying after the launch of the Lido V3 testnet, maintaining stability above $1.00. In currency movements, the EUR/USD is gaining traction, trading above 1.1600 thanks to a weaker dollar. GBP/USD is around the 1.3400 mark as sellers pressure the US dollar, while gold maintains a strong level at about $4,200 due to trade and political worries. The market seems to be on edge after last Friday’s sharp drop caused by tariffs and the tepid recovery on Monday. The “inside day” pattern indicates uncertainty among traders. The real challenge will come with the approaching November 1 deadline for the China tariff, now just over two weeks away.

Volatility and Strategic Approaches

Market anxiety is evident in the CBOE Volatility Index (VIX), which has climbed to 21.5, significantly higher than its yearly average of 16. This increased volatility reminds us of the trade war days of 2018-2019, where major news led to sharp market fluctuations. As a result, we are seeing a rise in demand for put options on key indices like the SPX. For the S&P 500, important levels stand at 6,762 for bullish movement and 6,550 as critical support. A strategic approach could involve bull call spreads above 6,762 to profit from a potential breakout with limited risk. On the other hand, traders who expect a break below 6,550 might consider buying put options to hedge or speculate on a downturn. We are also witnessing typical signs of a flight to safety, as gold recently surpassed $4,200 an ounce for the first time since earlier geopolitical tensions arose this year. This coincides with a weakening US Dollar Index (DXY), which has fallen below 104, indicating that traders are moving away from US assets. This situation might make options on gold ETFs a useful hedge against possible equity market turbulence. Current market nerves clash with the strong resilience shown, as there has not been a pullback of 6% or more since early 2024. This sets up a classic struggle between fears of an overstretched AI rally and robust underlying momentum. For traders who sense a major movement is near but are uncertain of its direction, long straddles or strangles on the SPY could be an effective way to prepare for volatility spikes around the tariff deadline. Create your live VT Markets account and start trading now.

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