Oil-Related Plays Reverse Post-Election Gains
Dr. Duru | Mar 15, 2017 04:35AM ET
The big story coming out of the November presidential elections was the flurry of “Trump Trades ” that soared on an incremental surge of optimism and expectations. Now the growing story includes the sprouting list of trades that have completely reversed post-election gains. The recent rapid decline in oil prices on the heels of surging U.S. inventories finished the post-election wipe-out for the United States Oil Fund (NYSE:USO) and the Energy Select Sector SPDR ETF (NYSE:XLE). I drew The horizontal bars on the charts below to mark prices at the close of trading on election day.
The United States Oil Fund (USO) enjoyed one month of post-election gains. USO has now lost all those gains with the majority of the loss coming just in the last 6 trading days.
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The Energy Select Sector SPDR ETF (XLE) finished its post-election reversal last week and tried bouncing right off its pre-election price. This week, that line of support is in peril.
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This rapid decline has me thinking once again about a USO hedged trade or refreshing my USO versus United States Gasoline (UGA) pairs trade. I am still carrying remnants of the last phases of both trades. For the immediate future, I need to wait out the market’s full reaction to a March rate hike and at least one or two more U.S. oil inventory reports.
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While the post-election reversal of oil-related plays stands out, the most important post-election reversal still sits with AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs). Last week, I flagged this reversal as part of a look at the stock market’s latest bearish divergence. This divergence came after I examined the various ways in which the underlying technicals of the stock market appear to be breaking down.
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The confluence of evidence seems to confirm that the market is biding time until a May rendezvous with the likely end of this low volatility environment. Yet, until price action on the S&P 500 (SPY (NYSE:SPY)) confirms to the downside, this weight of evidence is something for keeping traders alert but not yet something to drive action. Stay tuned.
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Be careful out there!
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Full disclosure: short USO put options, long USO put options, long UGA
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