Houthis Don't Surf!

As we have noted since March, it is virtually impossible to successfully fight to win a war while also sweating every single tick across several markets. The latest version of this theory was put into praxis again this weekend, as President Trump reversed his own decision a few times regarding whether to help the Saudis fight the Houthis via airstrikes.

Trump ultimately chose the "TACO" route last evening, choosing not to authorize strikes. Of course, he made sure to leak it and have it clearly announced before futures opened. Stock futures then celebrated, with oil coming in alongside rates, while the Nasdaq led a rally which has carried over into today's session. 

Without question, the inverse relationship between oil, rates, versus the Nasdaq (and usually the S&P and small caps, too) remains intact, which reinforces the headline-driven nature of the type of market in which we continue to operate. In other words, even on days like today, with bulls celebrating the Nasdaq and semis surging while rates and oil come in, we can see how correlated these asset classes are. In my experience, that drives home how fragile the underlying foundation of the market truly is. 

Overall, I continue to take the broad view rather than get jerked around by the daily swings. On the USO ETF monthly chart, below, crude oil is still breaking out from a multi-quarter bull flag despite some recent dips. 

As I write this in the final hour I see the VIX flip green with oil nicely off session lows. Midterm election year seasonality still strongly suggests that mid/late September rallies get sold in equities. Thus, I suspect it will take much more weakness in rates and oil in order to overpower that bias in the next few weeks.