Oil Had Rallied In The Past Few Weeks On The Expectation That Trump Will Withdraw From The Iran Nuclear Deal

President Trump Will Decide On Iran Deal On Tuesday

The S&P 500 was up 0.34% on Monday and the Russell 2000 was up 0.89%. There was a modest pullback in the afternoon which some blamed on Trump’s tweet which stated he will announce his decision on the Iran deal at 2:00 PM today. If you think the President will continue the current agreement, then oil should fall and equities excluding energy should rally. If you think Trump will announce sanctions or tougher goals for Iran’s nuclear program which could cause Iran to retaliate, then oil should rally and stocks should fall. The stock market’s small reaction tells me Trump exiting the deal is priced in. If he stays in, there will be a much bigger reaction than if he leaves.

The chart below shows that oil finally breached $70; it fell about $1.25 because of Trump’s tweet. Oil had rallied in the past few weeks on the expectation that Trump will withdraw from the Iran nuclear deal. The sanction waiver expires on May 12th, so the market anticipated a decision around now. This is sort of like a buy the rumor sell the news event except the news didn’t come out. It was an announcement that the news will be released. As I mentioned, if Trump extends the waiver or announces a new deal with Iran, oil prices will fall sharply. They will rally modestly if Trump ends the waiver and doesn’t seriously look for a new agreement.

(Click on image to enlarge)

Technicals Very Important To Stocks

As I have been discussing for the past few weeks, I think the technicals are especially important to the S&P 500 as investors decide whether the S&P 500 makes new highs or falls below the February low. The volatility has compressed after the February correction, but the market hasn’t rallied. This is like the opposite of January when stocks rallied while volatility increased. If the opposite reaction were to follow, stocks would rally sharply in the next few days. As you can see from the chart below, the 200 day moving average has been support for the market. The blue line shows the lower highs the market has made; this acts as resistance to the upside. Both the support and the resistance are converging. Unless the market stays within a 66 point range this week, there will be a critical move by Friday.

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