Equities: Oil Hedges Look Mispriced

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Discussion

As Iranian missiles were landing in Israel yesterday, mainstream media commentators were saying during their live coverage that the Biden administration will do whatever it can to avoid A) getting the US directly involved in the conflict and B) an oil spike ahead of Election Day. In other words, it’s crystal clear to the world that Biden & Co. is managing Israel-Iran from a political perspective first, foreign policy second. It’s no wonder oil has barely budged.

But that’s the opportunity.

Analysis

SPX Energy Sector

The SPX Energy sector is unequivocally weak both from a relative strength perspective (versus SPX) and versus oil. Historically, a rising XLE/Brent Crude ratio alongside an XLE relative strength downtrend tends to confirm the downtrend, and that’s the current picture.

But Israel-Iran changes the game here.