Market Momentum is Still Negative

OPEC

If you don’t hear from me before noon, I’m likely doing what I’ve been doing all day. No, not watching England somehow magically beat Germany in soccer (football to my colleagues over at Godesburg Financial Publishing). I’m watching market momentum, and it’s squarely negative today. It has been an extremely odd market today. I think that the Dow has been range bound now for several hours. This market wants to go down. But it’s being propped up by an unwillingness to capitulate.

It is very unusual to see the VIX and the VXN (CBOE Nasdaq Volatility) up on the same day that the S&P 500 and Nasdaq are moving higher. Something is about to break. So, if stocks fall in the last hour, you heard it here first.

Let’s Talk Oil

Later this week, OPEC+ is going to tell us everything we need to know about crude output. Markets are expecting that the world’s largest oil cartel will increase production. In addition, markets are waiting for Iran to bring upwards of two million barrels per day back onto the markets. Not so fast. The ongoing Iranian deal is on the verge of collapse. The recent election of a hardline president shows that Iran won’t make any concessions to the Biden administration.

Ebrahim Rasi’s election in June was not a surprise to me. He was the person that Ayatollah Al Khamenei (the supreme leader) wanted in charge. Iran is in a very bad spot in terms of economic development. They’re not going to open up their economy to the world. They’re not going to negotiate with the West.

And the recent conflict between Hamas and Israel is a reminder of how quickly that region can destabilize in a matter of weeks. Iran alone will be responsible for the return of a “geopolitical premium” on oil. So, even if they do bring some crude back to the markets, I can expect that prices will remain higher for longer.

Target Price for Crude Oil

My price target for Brent crude is now $85 per barrel. I am not of mind that Goldman Sachs’ $100 speculation is going to happen. I’d say that there is a less than 5% chance that oil hits triple digits. But I can expect that OPEC will want to let crude prices run higher before they turn on the taps full bore.

I really like small-cap energy stocks in the U.S. patch right now. Higher Brent crude prices will drag U.S. WTI crude prices with them. Look to the Invesco S&P SmallCap Energy ETF (NASDAQ:PSCE) if you’re looking for exposure to the U.S. oil patch. I’ll be back tomorrow to explain my favorite way to trade PSCE right now.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

Related Articles