Iran peace deal floods the market with oil — short energy stocks and oil funds
Thesis
The agreement to reopen the Strait of Hormuz takes a major geopolitical risk premium off the table, causing Wall Street banks to slash their price forecasts. With a wave of new supply expected to hit the market and prices already breaking below the $80 mark, the trend for oil is clearly pointing down. Companies that drill and refine oil, like ExxonMobil and Chevron, usually see their profit margins shrink when crude prices fall. Betting against oil and major oil companies as this new supply floods the market is a straightforward way to play the news.
Strategy approach
Build a trend-following strategy that enters short on USO (or CL futures). Entry condition: price closes below the lower Bollinger Band (20, 2) on the Daily timeframe. Exit condition: price closes above the 20-day Simple Moving Average, or hold for a maximum of 15 trading days. Target a 5% to 8% downside move.