Getting Out of Line

The big news of the afternoon, which clearly has had an impact on markets, centered around U.S. Energy Secretary Chris Wright deleting his "X" post, which had announced the U.S. Navy escorted an oil tanker through the Strait of Hormuz. Iranian officials immediately refuted the validity of the post, which Wright (or his staff) had deleted, suggesting it was incorrect information.

On the back of this development we have seen oil reverse higher while stocks fade to the downside as I write this. 

Typically, we do not harp on conspiracy theories are become overly attached to the idea of outright manipulation of markets. However, since the pandemic both with the Trump and Biden Administrations it is hard not to at least consider the possibility. Simply put, there have been too many "coincidences" to ignore. We know the Strait of Hormuz is critical for transportation of a significant percentage of the global oil supply. Hence, there is every motivation for the incumbents to inspire confidence in marine safety.

But only if that is the actual case. 

If not, all of the talk from the President about the war being pretty much over is not likely to go over in the same manner as walking back his China tariffs last spring. The tariff talk is relatively easy to talk down, whereas an active war against an opponent like Iran is a completely different ballgame. 

Thus, its is worth reiterating that crude oil, seen first below on the monthly chart ETF, is just now breaking out on high buy volume from a four-year sideways base. Furthermore, it is breaking out at a time when the sector at-large is as underweight as any sector had been in a substantial period of time--Fund managers and retail alike had blown off energy to the point of mocking it all the while Warren Buffett was adding to CVX and OXY. As a result, attempts to crack it back lower should prove futile, in due time 

Next, small caps on the IWM ETF, second daily chart, faded from the key $255 level. I continue to watch this area for clues about whether it has converted from prior support into resistance, a bearish development indeed.