Oil drops below $90 on peace talk hopes — grab the broader market rally
Thesis
High oil prices act like a hidden tax on the economy, making everything from shipping to groceries more expensive and squeezing company profits. The fact that oil has fallen back below $90 gives the stock market immediate breathing room to rally. News that peace talks are progressing and that Kuwait is ramping up crude exports suggests this drop in oil prices might stick around for a while. Historically, when the cost of energy drops sharply, large company stocks tend to catch a strong bid as investors anticipate better profit margins ahead.
Strategy approach
Build a long strategy for SPY on the daily timeframe. Enter a position when oil (USO) drops by at least 3% over a 2-day period and SPY's 10-day RSI is below 45. Hold for a maximum of 15 trading days. Exit when SPY reaches a 4% gain or hits a 2% trailing stop.