Oil markets flooded with new supply after Iran deal — bargain hunt on major oil
Thesis
A sudden surge of oil supply usually means cheaper gas and lower profits for oil companies in the short term, causing energy stocks to drop quickly. However, major oil companies like Exxon and Chevron have deep financial reserves and often bounce back fast once the initial panic selling settles. Investors who buy these high-quality energy stocks while they are temporarily discounted by this flood of news often see solid returns as oil prices eventually stabilize.
Strategy approach
Build a mean-reversion strategy that enters long XLE on the daily timeframe after three consecutive lower closes, provided the RSI(14) drops below 40. Exit when the price closes back above the 10-day simple moving average, or after a maximum hold of 15 trading days. Include a 5% hard stop loss.