These Two Charts Warned of Friday’s Jolt VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Israel and Iran threaten to start a war, again…
- Two signs the market calm couldn’t last…
- What a collapsing dollar really means…
- Gold, oil, and non-U.S. stocks could keep shining…
Friday morning saw a new escalation in the Middle East conflict… For the past 45 years, Israel and Iran have been in an indirect war – primarily over the status and fate of Palestine. Throughout the decades, brief moments of direct conflict have erupted. In April 2024, Israel directly bombed an Iranian consulate in Syria, killing senior Iranian officials. Iran responded with missile strikes into Israel, Israel fired back, and the conflict died down. What happened last week, however, could be the biggest escalation thus far and could potentially drag the two into a true hot war. Here’s Bloomberg with the gist: Israel launched strikes across Iran on Friday morning, targeting nuclear facilities and killing top military commanders in a major escalation against its chief adversary that risks sparking a broad war in the Middle East. The strikes were far more extensive than those Israel carried out against Iran last year and underscored the country’s growing assertiveness, as well as its military and intelligence capabilities. U.S. President Donald Trump urged Iran to accept a nuclear deal with Washington to avoid further attacks, which Prime Minister Benjamin Netanyahu vowed would probably happen over the coming days as Israel looks to deal a severe blow to Tehran’s nuclear program. Whatever happens from here, U.S. investors’ first response was to pull back risk, prepare for more volatility, and bid up the price of oil and gold. The S&P 500 fell 1.25% from the previous session. Gold traded at an all-time high of nearly $3,500, and oil was up as much as 12% on the day. Not many people could honestly come out and say they saw the Israel missile strike coming. But as we showed last week, data has a funny way of foretelling big moves. | Recommended Link | | | | Before C3.ai delivered 462.5%… Before Credo delivered a double in 48 hours… Before a left-for-dead gaming stock exploded up to 10,633%… Jonathan Rose told his followers what was coming – down to the ticker. How? During his time as a market maker on the $300 trillion CBOE… Rose disovered a weird anomaly hidden deep inside the options markets. It could give you a chance to 10X your gains from AI stocks… by getting in just before they potentially make major public announcements. Jonathan calls it his “Big-Money Tell.” And he’s already used it to pocket more than $10 million in trading profits. How does it work? And how can you use it to go for 10X gains starting as soon as 7 days from now? Click here for all the details from Jonathan himself. |  | | Price action gave us a heads-up… Take, for example, the CBOE Volatility Index (VIX). When we apply Bollinger Bands, which show a rough range of where we can expect the asset to move, we can get a sense of just how volatile the VIX is. Now, take a look at all the red circles below. Those note times when the VIX was trading at its lower Bollinger Band. When that happens, volatility is unusually compressed: 
And when volatility is unusually compressed, you can expect it to pop in the coming days. You don’t need to know why or how. It’s just something in the laws of markets that periods of abnormally low volatility haven’t lasted. I learned this from a really smart guy named Jeff Clark… He noted this chart, along with a couple others last week, to show why he thought the next likely move for markets was down. To put his money where his mouth was, he even traded call options on an ETF designed to amplify the move of the VIX, the ProShares Ultra VIX Short-Term Futures ETF (UVXY). Since he recommended trading UVXY last Tuesday, it’s up more than 16%. But it’s far from the only piece of evidence he saw last week that suggested markets would turn down. Here he is writing to readers of his Market Minute e-letter on Friday: This surprised me Wednesday… 
This is the CBOE Put/Call ratio. It shows the volume of puts traded divided by the volume of calls. The ratio usually hangs out near 0.90–0.95, because there are almost always more calls traded on any given day than puts. When the ratio falls below 0.80, traders are excitedly buying calls – which usually happens near at least a short-term top. Indeed, the few times this ratio dipped below 0.80 in May, the S&P 500 pulled back almost immediately. […] You might recall, on Wednesday the stock market opened higher. In fact, the S&P 500 traded as high as 6059. That’s the highest we’ve been since the market peaked in mid-February. But, on Wednesday, the bulls couldn’t hold the gain. Stocks reversed midday, and the S&P closed at 6022 – down 16 points for the session. That action – opening higher and then closing lower – is generally bearish. It should have prompted some put buying, or at least cooled the heels of call buyers. Instead… Traders were enthusiastically buying calls as the market was falling. That’s a signal that investor sentiment – a contrary indicator – is too bullish. Jeff’s sticking to his guns that the recent market recovery is nothing more than a bear-market rally. That’s what he sees. And he’s prepared his readers well for a continuation of this volatility. But importantly, Jeff doesn’t advise hiding out in a bunker with a bunch of gold bars. He understands that downturns are powerful but quick. Stocks trend upward the overwhelming majority of the time. Preparing for upside and downside trades are important – and that’s exactly what we’ve helped him do with our software. Last week, Jeff and TradeSmith CEO Keith Kaplan debuted the newest software to his subscribers: a daily TradeSmith scan showing the top bullish and bearish trade opportunities across the market using Jeff’s proprietary methods. These strategies have a win rate in the range of 60%–70% over the last 10 years and have put up an average winning return of more than 5.5% over the last 12 months. Those kinds of odds make it a prime tool for trading options. And Jeff knows the options market better than the back of his hand. Today’s the last day to sign up for Jeff’s advisory Delta Report to access his weekly recommendations, his trading blog, Delta Direct, and our newest software. I highly suggest checking out the launch presentation for all the details while it’s still available. The U.S. dollar is in peril, and we need to understand what it means… From the January highs, the U.S. Dollar Index (DXY) has lost about 10%. That’s charted against a variety of major currencies in the Western world. And it’s about to signal a major trend change. We can see below that just a few weeks back, the dollar broke through the last two years of support to trade below 100.4. At the rate of this plunge, the 50-day moving average of DXY is set to cross below the 200-day moving average – signaling a potential change in trend: 
We’ve already talked about some of the reasons why we’re seeing this shift. Many see the United States as being on an unsustainable fiscal path, which is informing an appetite not just for hard, global assets like gold and bitcoin, but also non-U.S. markets: 
Absent any major breakthrough on the decline of U.S. fiscal dominance, we should expect this trend to continue and even accelerate. If you don’t already own bitcoin… key commodities like gold, silver, and oil… plus quality stocks outside the United States… Now’s the time to consider rebalancing. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
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