Markets

Why Fading The Move Caused By Trump's Latest Market-Related Tweet Would Be A Mistake

I have said many times here that traders and investors should be careful to set their personal political views aside when considering markets and possible trades, but I make no apologies for saying it again. In these hyper-partisan times, it is even more important than ever, whichever side you are on, to be as objective as possible when assessing the impact of politics.

The President’s supporters, for example, are probably still prone to believe that his tweets relating to the markets have weight, even though opposing the initial moves in reaction to them has been such a successful strategy, while his opponents no doubt are now convinced that nothing he says or tweets will have any lasting impact.

Despite the success in the past of fading the drop in stocks caused by Trump’s tweets, such as Amazon (AMZN) in April of last year, opposing the move prompted by the latest market related Presidential tweet could prove to be a mistake.

The post concerned came on Monday morning, when the President wrote: “Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!”

The oil market reacted, with WTI losing around three percent that morning. Based on past performance, that was a solid buying opportunity, and indeed all of those losses have been recovered in the two days since.

If you missed that short-term trade opportunity, however, don’t assume that there will be a lot of follow through and that buying crude now would be a smart move. Given the increasing evidence of a tight market as things stand, that is an understandable position to take regardless of the history of Presidential tweets, but there are two significant reasons why it may prove to be a mistake.

The first is the technical position of WTI futures:

While Monday’s drop was certainly in reaction to Trump’s tweet, it was facilitated, and maybe exaggerated, by the market’s proximity at that time to significant resistance level. When the market paused and attempted to retrace in November following a massive drop, that retracement failed at around $58. That was also the turning point on Monday, and now that that level has proven significant again, it is reinforced.

That doesn’t mean that it will definitely hold, of course, especially given this morning’s inventory data that once again showed a bigger imbalance between U.S. supply and demand than the market was expecting. However, even if you think that oil is going to continue higher from here, there is very little to lose by waiting for a clean break of $58 before acting.

There are also reasons to believe that that may not be the next significant move in oil.

Donald Trump’s tweet on Monday was about more than wishful thinking or venting against a perceived enemy. He believes that he may have a great deal of influence on the Saudis, and he may be right. After the killing of Jamal Khashoggi last year, Trump refused to condemn the Saudi government and its de facto leader, Mohammed Bin Salman. He was the only leader of a major Western nation to take that stance. You may or may not think that was justified, and Trump’s motives were never really made clear, but it probably did give him some sway with OPEC’s leader.

The delicate politics of that organization make it hard for the Saudis to immediately give Trump what he wants, and the initial response from them is to say that they are already "taking it easy". Some kind of conciliatory words or gesture over the next few weeks would come as no surprise though, and if it does come, the reaction will be swift and sharp.

There is no doubt, as mentioned above, that the current supply situation is pushing oil higher, and, ironically enough, the Trump administration’s sanctions on Iran and Venezuela are a large part of that. However, as PVM Oil Associates strategist Tamas Varga says in the above-referenced article, “Donald Trump tweeted and OPEC replied. It was not the message he wanted to hear, so the story is not over yet."

As that story develops there is simply too much risk in taking a long position just in front of a significant resistance point, so this time, trading in opposition to Trump’s tweet would be a mistake.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

Read Martin's Bio