The Dow Jones Industrial Average traded near 53,000, about 250 points higher after opening a little above 52,750, slipping below the rising 50-day EMA around 52,700 and then retracing the move; the swing followed three down sessions and equated to roughly 0.5%. Price action tracked the bond market: the 10-year Treasury yield reached 4.818%, last seen in November 2023, while the 30-year sat above 5.28% and the 2-year near 4.40%. European sovereign bonds were cheaper on the day and Japan’s 10-year yield remained at multi-decade highs, with equities turning as the long end stopped rising. Fed pricing shifted, putting a September hike near 66% versus roughly 40% a week earlier.
Oil and data remained in focus. WTI traded above $90.00 and Brent above $94.50, with Brent about $20 higher than before the war began on 28 February; US strikes hit IRGC targets near Bandar Abbas and along Iran’s southern coast after two tankers were struck in the Strait of Hormuz. A government estimate put more than 17 million barrels through the strait on Monday versus pre-war throughput near 20 million bpd, while tracking data logged five commodity vessels against a ten-day average near 14; the same tracker later revised crude flows to roughly 8.6 million bpd. On labour, private payrolls rose 38K in August versus 47K expected and 46K prior. Ahead, the Beige Book is due 18:00 GMT, with policymakers at 12:30 and 19:00 GMT Thursday; ISM services is seen at 54.3 versus 54.1, with prices paid 70.3 and employment 47.4. Composite PMI is due 13:45 GMT at 56, jobless claims are seen at 205K versus 203K, and Friday payrolls are forecast at 58K after a 23K contraction, unemployment 4.1%, earnings 0.3% MoM versus 0.1% and 3% YoY versus 3.2%. Technical markers included resistance above 53,200 then 53,500, with 53,800, 54,000 and the record just under 54,750 around 3% higher; support sat at 53,000, then the 50-day EMA near 52,700 and 52,500, with the 200-day EMA near 50,000. Stoch RSI was near 34, and a close below 52,700 was flagged as opening 52,000.
Equity and Bond Market Strategies
We must watch the Dow Jones closely as it hovers near the 53,000 level, using options to hedge against a potential drop below the crucial 50-day EMA of 52,700. If the index closes below 52,700, the bullish trend is over, and we should pivot to buying puts targeting 52,000. Historically, a daily close below this key moving average triggers heavy automated selling, similar to the major equity pullbacks observed during previous high-rate cycles.
Because this equity rebound is entirely driven by the bond market, we need to closely monitor the 10-year Treasury yield, which recently surged to 4.818%. With traders now pricing in a 66% chance of a rate hike at the September 16 meeting, up from 40% last week, rate-sensitive derivatives face high risk. We recommend using volatility strategies on bond ETFs, as long-term yields like the 30-year sitting above 5.28% indicate that inflation fears are far from over.
Commodities, Macro Data, and Derivative Tactics
We should remain highly skeptical of claims that oil is peaking, especially with Brent crude trading above $94.50 and WTI over $90.00. Real-time shipping data reveals that actual flows through the Strait of Hormuz are closer to 8.6 million barrels per day, which is about half of the official government estimates. To hedge against this underreported supply tightness, we can buy call options on energy sector equities and crude futures to capitalize on sudden price spikes.
With August private payrolls coming in weak at 38,000, the traditional trend where bad economic news boosts stocks has broken down. We advise using short-term straddles on major indexes ahead of this Thursday’s ISM services PMI and Friday’s hourly earnings data. These upcoming releases will show whether inflation is seeping deeper into the services sector, making them the ultimate test for our derivative positions before the Fed decision.
