How I'm navigating Mideast tensions
I did an interview with Wealthion earlier this week, where I discussed the bullish case for risky assets.
Unfortunately the timing of the interview wasn’t great. After the interview concluded, I checked my screens and saw the headlines that Iran was about to launch some ballistic missiles at Israel. Equities were in the midst of a selloff, and I decided to immediately derisk my portfolio despite talking about how bullish I am just minutes ago.
Being a global macro trader requires mental flexibility and the ability to change your mind when the facts change. The rationale for de-risking my portfolio was the following:
-I’m a trader, not investor, and therefore have stops on all my positions below key technical levels regardless of how bullish I am
-Negative geopolitical shocks like Iran firing missiles at Israel tend to increase downside volatility, making it more likely that my stops will get hit
-If I think my stops will get triggered as the crisis unfolds and escalates, I should be proactive and exit early before my stop levels get reached.
I wrote this thread on X that night:
Even though I’m bullish on the global economy and risk assets in the med to long term, these headlines about Iran firing missiles at Israel have forced me to clear my book of positions. Last time Iran fired missiles at Israel was April 6, and it was followed by multiple rounds of tit-for-tat retaliation between Israel and Iran. US and Israeli intelligence was able to provide warning ahead of the Iran attacks but Iran attacked anyway.
The drawdown in SPX from Apr 6 to the bottom of the selloff was roughly two weeks. I’m not saying it’s going to go down exactly like April, but the odds that today’s selloff will recover in V-shaped fashion within 24 hrs are low. We will likely see days, if not weeks of volatility. At some point there will be an incredible opportunity to go risk-on again but you have to first survive and go into that dip with dry powder.
My philosophy in trading is to bail early, not when it becomes too painful to realize the losses. Don’t FAFO. You can always get back in when the coast looks clear.
This philosophy saved me some PnL as risk assets continued to make new lows throughout this week.
I also established a long in Brent crude oil the next day (with an alert in the paid subscriber chat), as it became clear that Israel intends to escalate the conflict by attacking key Iranian infrastructure, such as its nuclear facilities or oil facilities. During the last tit-for-tat exchange, Israel didn’t target critical infrastructure. This intention was confirmed yesterday when Biden said that they are discussing whether Israel should attack Iran’s oil infrastructure. Last night Israel attacked a Russian airbase in Syria, likely a move to clear an air corridor into Iran to stage its next strike.
The long oil position is now in the money after Biden’s comments yesterday.
The current situation is that we have a potential airstrike by Israel on Iran hanging over the market’s head as we enter the weekend. To avoid weekend gap risk, I think risk assets will sell off into the close on Friday.
Further complicating the picture, we will also get the non-farm payroll number today. A weaker than expected number might exacerbate a risk selloff, while a strong number might trigger a short-term rally that ends up reversing over the course of the day. As a trader looking for opportunities to go long equities again, I might be better off waiting until after Israel attacks Iran and gauging the market reaction then. An Israeli attack on Iran’s oil or nuclear facilities could very well end up being “peak fear”, as there is not much that Iran can do to retaliate in a meaningful and effective way (as far as I know). When I decide to go long again, I’ll be sending out an alert to paid subscribers via the chat and/or email.
Disclaimer: The content of this blog is provided for informational and educational purposes only and should not be construed as professional financial advice, investment recommendations, or a solicitation to buy or sell any securities or instruments. The blog is not a trade signaling service and the author strongly discourages readers from following his trades without experience and doing research on those markets. The author of this blog is not a registered investment advisor or financial planner. The information presented on this blog is based on personal research and experience, and should not be considered as personalized investment advice. Any investment or trading decisions you make based on the content of this blog are at your own risk. Past performance is not indicative of future results. All investments carry the risk of loss, and there is no guarantee that any trade or strategy discussed in this blog will be profitable or suitable for your specific situation. The author of this blog disclaims any and all liability relating to any actions taken or not taken based on the content of this blog. The author of this blog is not responsible for any losses, damages, or liabilities that may arise from the use or misuse of the information provided.