Political Amateur Hour

The governor of the Central Bank of Iran apparently announced that his country will stop using the US dollar in its financial and foreign exchange reports for the new fiscal year beginning in March. He also hinted strongly that he may opt for the Euro when releasing its key economic reports in the future. Excellent choice sir! Detach yourself from the world’s firmly established reserve currency and instead shift to the one which has been causing nothing but economic turmoil across the region since its very inception. Would you like a side order with economic sanctions with that?

I’m not one to worry much about news reports coming out of Iran and especially when they constitute little but diplomatic brinksmanship. However this one had me in stitches as this is not only going to accomplish exactly nothing on a geo-political scale but may actually play in the hands of Trump who greatly desires a much weaker Dollar (or at least a stronger everything else). So a bit of political commotion and the threat of shifting financial allegiances to the bureaucratic cesspool that is the European Union may just accomplish where attacking Das Merkel on currency manipulation the other day failed to do the trick.

It’s may also give a great boost to Trump’s policy of expanding oil and gas production right here in the United States. But if nothing else it may light a fire under that XOP (SPDR S&P Oil & Gas Exploration & Production ETF) campaign I had my eyes on for a while. The daily is exactly where I wanted it to be and as you can see the weekly panel only leaves a duo of Net-Line Buy Levels to be breached. Plenty of support below and if this one gets going it won’t look back.

Seasonality courtesy of Financhill – click on the chart or here to look at a dynamic chart plus some juicy stats. Here are some highlights:

• Over the next 13 weeks, XOP has on average historically risen by 14.5% based on the past 10 years of the ETF’s performance.
• XOP has risen higher by an average 14.5% in 9 of those 10 years over the subsequent 13 week period, corresponding to a historical probability of 90%.
• The holding period that leads to the greatest annualized return for XOP, based on historical prices, is 1 week. Should XOP move in the future similarly to its average historical movement over this duration, an annualized return of 142% could result.

You may be surprised to hear that we actually are looking at a great entry opportunity on the equity side. Just take a look at the daily panel (right) which clearly has been weakening but thus far has staved off a bigger slide. Now right here this moment I have to be long although I consider it a low probability setup. But the potential payoff could be large and thus I’m willing to risk half an R.

Below 2262 we are entering bearish territory but taking a short position could get you into a whipsaw double loss. Which is why I suggest that you wait for a drop followed by a retest of the 2262 mark, preferably accompanied by a juicy divergence on the Zero indicator.

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