Inflation hits 3-year high on war-driven oil spike — buy energy stocks as prices
Thesis
The conflict in the Middle East is forcing oil shipments away from the Strait of Hormuz and through the Suez Canal, tightening global oil supply and driving up prices. This surge in oil is the main reason inflation jumped to 4.2%. Because inflation is running so hot, the Federal Reserve is now expected to raise interest rates to cool the economy down. Oil stocks and energy ETFs tend to thrive in this specific environment where energy shortages push prices up, making them a strong buffer against a broader market that is likely to fall as rates rise.
Strategy approach
Build a strategy that enters long on USO (United States Oil Fund) when the price is above its 20-day simple moving average (SMA) and the 10-day moving average has crossed above the 50-day moving average. Hold for up to 20 days, exiting with a 4% trailing stop or if the price closes below the 20-day SMA.