Markets Try to Bounce as VIX Fades

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The ES and NQ performed well after dropping to a low of 5221.75 just after the open. Every dip was bought, whether it was a 20-point drop or a 70-point drop — at least until late in the day. 

At that point, the market was hit hard by $7 billion in sell imbalances on the 3:50 imbalance. The buying pressure was heavy, and a total of $13.5 billion in selling occurred within 24 hours. I believe this selling is part of a risk-off trade related to the Iranian plan to attack Israel. 

From the reports, it sounds like Iran and its proxies are planning to strike Israel, and Israel will likely respond in kind. If the conflict lasts only a few days, the markets might bounce back. However, if the fighting extends over days and weeks, the markets could decline sharply.

I’ve always said that the first significant war the US will become involved in will be in the Middle East. The situation is complicated: the US economic situation is unstable, Putin has been making progress in Ukraine, and there is news about a Pakistani national with ties to Iran being charged with a plot to potentially target Trump. The situation is highly volatile.