A market torn between hope and despair

As predicted in our November 2025 VIX scenario, the CBOE VIX increased significantly during the first quarter of 2026. Ongoing conflicts and the resulting increase in the futures prices for related commodities, such as oil, have heightened overall uncertainty. According to Trump, the conflict between the U.S. and Israel, on the one hand, and Iran and its proxy allies, on the other hand, will be resolved in the near term. He is also pressuring NATO members to support the reopening of the Strait of Hormuz. Uncertainty about the timing of these anticipated events and potential future events has contributed to the elevated VIX, which has remained between 25 and 30 over the past few weeks. However, there are signs that the VIX could fall faster than expected, providing traders with the opportunity to take a short-term contrary position.

The uncertainty surrounding the conflict in Iran has recently grabbed global attention, pushing other relevant international discussion points, such as Trump’s tariffs, further down the agenda. The closure of the Strait of Hormuz, in particular, has had global consequences, with oil prices surging past $100 per barrel. The rapid rise in oil prices, in turn, stirs volatility in surrounding markets. For example, the price of input commodities for biofuels is rising. While VIX and oil prices tend to be negatively correlated under normal trading conditions, extreme shocks, crises, and other outlier events can reverse this relationship causing a positive correlation. This appears to be the case presently, as markets expect oil prices to remain high while the VIX is also expected to remain at high levels for an extended period.

On the Polymarket platform, the odds that U.S. military forces will enter Iran by April 30 are 45%, while the odds for December 31 are 61%. These figures contradict Trump’s message, who said he had "great talks" with Iranian government representatives and that the war would soon end. The discrepancy between official statements and market-based betting highlights the significant uncertainty underlying the current elevated VIX. This uncertainty is further exacerbated by the reluctance of other NATO countries to assist in reopening the Strait of Hormuz.

With markets anticipanting a prolonged engagement and sluggish negotiations, there is an opportunity for risk-tolerant short sellers to speculate on mean reversion, with the VIX retreating back below 20. However, the key point remains that the mean reversion could happen sooner rather than later, as evidenced by several overlooked headlines. For instance, Iran has made concessions regarding enriched uranium and has shown a willingness to relinquish its stockpile. Furthermore, the Houthis' communications have softened relative to their previously aggressive tone, possibly signaling restraint ahead of a deal. taken together with the statement that there has been "significant progress" in diplomatic efforts, there is a clear argument that the conflict could end sooner than expected.

Over the past week, the situation between the U.S., Israel, and Iran has shown signs of both escalation and de-escalation.  Saudi Arabia is now considering a military response against Iran, which is an example of escalation. Meanwhile, the price of Brent oil rose from around $100 to approximately $110 per barrel over the past week, only to fall back down to around $100 after President Trump tweeted on Monday, March 23.

On Wednesday, March 25, the Bank of Japan will release the minutes from its January 23 policy meeting. Sweden and the UK will release their February producer price indices, and the UK will publish its February consumer price index. Next, the NIESR in Sweden will present its economic outlook. Then, Germany will release its IFO index for March. Finally, the U.S. will release its current account balance for the fourth quarter, import prices for February, and weekly oil stock statistics from the Department of Energy.

On Thursday, March 26, Sweden's H&M and Germany's Pfeiffer Vacuum will release their interim reports. Hexagon, a Swedish company, will also host a capital markets day. The macro news section begins with Sweden's February trade balance. Next is Germany's April GfK consumer confidence index, followed by France's March confidence indicators for industry and households, respectively. Additionally, Spain's Q4 GDP will also be released, along with an interest rate announcement from Norges Bank. The U.S. will contribute data on initial weekly jobless claims and the Kansas City Fed Manufacturing Index for March.

The macroeconomic agenda for Friday, March 27, is as follows: First, China will publish its industrial corporate earnings. Next, the UK will release its February retail sales figures, and Spain will publish its consumer price index for March. Finally, the U.S. will release the University of Michigan's consumer sentiment index for March, as well as wholesale inventories for February.

As expected, on March 19, the Fed kept interest rates unchanged and maintained its dot plot at one cut for 2026. However, the real driver has been the situation in the Middle East. On Monday, March 23, Trump announced that U.S.-Iran talks had been "productive," triggering a sharp rally of more than 1% in the S&P 500 and clawing back some of the previous week's losses. However, that momentum quickly faded. During Tuesday's trading, the index gave back Monday's gains, as there was no corroboration of the claim from the Iranian side, and oil prices rose somewhat intraday.

As the chart below shows, the S&P 500 is near the support level of 6,475–6,550. However, momentum is negative, which increases the downside risk. If 6,475 gives way, the next level to watch is 6,340. However, markets are volatile, so any concrete progress or escalation in ceasefire negotiations will continue to dominate day-to-day movements in oil prices and equity indices.

Macro uncertainty and higher financing costs are putting pressure on mega-cap tech, and the NASDAQ-100 is testing support around 23,865. Momentum remains negative, with the next downside level found around 23,585, followed by 23,000.

On Monday, March 23, the OMXS30 bounced back from its opening level around MA200. However, like most other equity indices, the OMXS30 has fallen since then. Support on the downside is found at around 2,850, followed by the MA200, which is currently at 2,772.

The German DAX is holding steady just above the 22,300-support level. The next support levels are found at around 21,800 and 21,265, respectively. Markets remain volatile, with concrete ceasefire progress or escalation continuing to dominate day-to-day movements.

EMA 9: 9-Day Exponential Moving Average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence in which each successive number is the sum of the two previous numbers.

MA20: 20-Day Moving Average

MA50: 50-Day Moving Average

MA100: 100-Day Moving Average

MA200: 200-Day Moving Average

MACD: Moving Average Convergence Divergence