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Gold futures prices have recently stalled after a record-breaking rally and retraced back to a key level of 3,200.

Historically, sharp moves out of this key pivot zone have often proven short-lived, suggesting the recent spike above may have been a false breakout.

The rebound in equity indices has been uneven. While the Nasdaq-to-Russell 2000 ratio is hovering near historic highs, its repeated failure to break above the overhead resistance level signals that a potential pullback may be imminent.

Crude oil has broken decisively below a multi-year descending triangle. A throwback to the former support is underway, continued rejection here could signal the start of a deeper bearish move.

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It’s been over a month since “Liberation Day,” and the global trade landscape has shifted significantly. Following the initial shock of record-high tariffs, most notably the U.S. imposing a staggering 245% duty on China, market sentiment took a hit, even as a 90-day grace period for some U.S. trading partners provided a brief sense of stability.

This past week, however, has marked a notable turning point. The U.S. and China agreed to a temporary tariff pause, cutting duties to 30% and 10%, respectively. In parallel, the U.S. also reached a targeted trade agreement with the UK. These developments have rekindled investor optimism, with hopes rising that the worst of the trade war may now be behind us.

As we noted previously, the "local peak" in fear and uncertainty appears to have passed. The U.S. dollar has strengthened, Treasury yields are climbing and gold prices have retreated as capital rotates out of safe havens. Renewed risk appetite is evident in the surge of flows into equities and cryptocurrencies. Tech-heavy indices have led the charge, buoyed by the resumption of U.S.-China trade in electronics and components. As global trade flows are expected to improve, the expected increase in freight and shipping is likely to boost demand for crude oil, which has seen a modest rebound. Moreover, agricultural futures are also gaining attention as trade in farm goods resumes at lower tariff rates.

Still, it’s important to temper expectations. The U.S.-UK trade deal is not a comprehensive free trade agreement but a targeted pact covering select sectors, such as autos and steel. The U.S.-China tariff reductions are strictly temporary, and many U.S. trading partners remain under a 90-day grace period. The recent rally likely reflects traders positioning ahead of a broader recovery, but with the global economy still absorbing the fallout from prior tariff shocks, this optimism could fade if negotiations stall or policy reversals occur. Moreover, the benefits are unevenly distributed: sectors directly impacted by the tariff rollbacks are recovering, but many industries remain under pressure from lingering trade barriers.

Looking ahead, tech’s outperformance has pushed the Nasdaq-to-Russell 2000 ratio to historical highs; but this divergence may not last. Renewed U.S.-China trade in electronics supports tech optimism. However, the impetus of tariff war was rooted in a policy agenda to revive American manufacturing. This suggests that the current tech-led recovery may be out of step with broader macroeconomic priorities – that of small-cap and industrial stocks.

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We conclude with the following hypothetical trades:¹

Case study 1: Short Nasdaq/ Russell 2000 ratio spread

We would consider taking a short position on the Nasdaq/Russell 2000 Index ratio by selling one Micro E-mini Nasdaq-100 Index (MNQU5) futures at the current level of 21,560 and buying four Micro E-mini Russell 2000 Index (M2KU5) futures at the current level of 2,126, with the ratio at 21,560/2,126= 10.14. We would place the stop-loss above 11.00 for a maximum potential loss of 0.86 points. Each point move in the micro E-mini Nasdaq-100 futures contract is two USD, and each point move in the micro E-mini Russell 2000 Index futures contract is five USD. Both legs have similar notional values:

• Nasdaq leg: 21,560 x 2 x 1 = 43,120 USD
• Russell leg: 2,126 x 5 x 4 = 42,520 USD

We can look at two hypothetical scenarios to understand the approximate dollar amount of a 0.1 point move in the ratio.

Scenario 1: Assuming the Nasdaq-100 Index stays unchanged, and the Russell 2000 Index rallies to 2,147, the ratio becomes 21,560/2,147 = 10.04. The overall profit, which comes from the Russell position in this case, is (2,147 - 2,126) x 5 x 4 = 420 USD.

Scenario 2: Assuming the Russell 2000 Index stays unchanged, and the Nasdaq-100 Index rallies to 21,770, the ratio becomes 21,770 / 2,126= 10.24. The overall loss, which only comes from the Nasdaq position in this case, is (21,560 - 21,770) x 2 x 1 = -420 USD.

In Scenario 1, the ratio drops by 0.1 points, yielding a profit of 420 USD from the long Russell 2000 position. In Scenario 2, the ratio rises by 0.1 points, yielding a loss of 420 USD from the short Nasdaq position. There is margin offset for Nasdaq/Russell 2000 Index ratio spreads.

Case study 2: Short Crude Oil futures

We would consider taking a short position in Micro WTI Crude Oil (MCLN5) futures at the current price of 62.50, with a stop-loss above 65.00, a hypothetical maximum loss of 65.00 – 62.5 = 2.50 points. Looking at Figure 4, WTI crude oil has the potential to trace back to its support level at 55.50, resulting in 62.50 – 55.50 = 7.00 points. Each Micro WTI Crude Oil futures contract represents 100 barrels, and each point move is 100 USD. The standard WTI Crude Oil futures contract is available as well.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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