The big story coming out of the November presidential elections was the flurry of “Trump Trades” that soared on an incremental surge of optimism and expectations. Now the growing story includes the sprouting list of trades that have completely reversed post-election gains. The recent rapid decline in oil prices on the heels of surging U.S. inventories finished the post-election wipe-out for the United States Oil Fund (NYSE:USO) and the Energy Select Sector SPDR ETF (NYSE:XLE). I drew The horizontal bars on the charts below to mark prices at the close of trading on election day.
The United States Oil Fund (USO) enjoyed one month of post-election gains. USO has now lost all those gains with the majority of the loss coming just in the last 6 trading days.
The Energy Select Sector SPDR ETF (XLE) finished its post-election reversal last week and tried bouncing right off its pre-election price. This week, that line of support is in peril.
This rapid decline has me thinking once again about a USO hedged trade or refreshing my USO versus United States Gasoline (UGA) pairs trade. I am still carrying remnants of the last phases of both trades. For the immediate future, I need to wait out the market’s full reaction to a March rate hike and at least one or two more U.S. oil inventory reports.
While the post-election reversal of oil-related plays stands out, the most important post-election reversal still sits with AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs). Last week, I flagged this reversal as part of a look at the stock market’s latest bearish divergence. This divergence came after I examined the various ways in which the underlying technicals of the stock market appear to be breaking down.
The confluence of evidence seems to confirm that the market is biding time until a May rendezvous with the likely end of this low volatility environment. Yet, until price action on the S&P 500 (SPY (NYSE:SPY)) confirms to the downside, this weight of evidence is something for keeping traders alert but not yet something to drive action. Stay tuned.
Be careful out there!
Full disclosure: short USO put options, long USO put options, long UGA