Oil spikes on rising geopolitical tensions; Stocks make cautious gains

Summary:

• Crude prices spike after tankers attacked

• Oil and WTI both gain over 3%

• S&P500 testing top of H1 and D1 clouds

• Uber gains on broker upgrade

• Stock of the week: Tilray

There’s been a sharp move higher in the price of oil after reports that two tankers in the Gulf of Oman have been attacked in a development that could have further reaching geopolitical implications. The incident this morning comes at a time of heightened geopolitical tensions in the region with US-Iranian relations deteriorating further after attacks on 4 tankers off the coast of the UAE last month. This region is particularly important to the crude oil markets with the Strait of Hormuz one of the most important “choke points” for waterborne oil and any further escalation could well cause a significant move higher in the market.

There is a school of thought that Trump may look to target a war with Iran to boost his re-election prospects in 2020 and while there is still some way to go for this eventuality to play out, given his erratic nature and populist policies it could well become a reality.   A potential double bottom could be forming in Oil at 59.50. Price is now attempting to move above the H1 cloud and a break above there could be seen as indicating a change in the near-term trend.

In terms of technical analysis for the S&P500 there’s a nice confluence of Ichimoku clouds developing with price testing both the H1 and D1 versions. These can be seen as potential resistance levels to keep an eye on today and a break above the H1 would be seen as positive, indicating the near-term trend has turned higher while a move above the D1 cloud would be a pleasing development for longer-term bulls. The S&P500 is probing the top of the H1 cloud around 2895 and this is a near-term potential resistance level to keep an eye on. On a daily timeframe the market is also probing the top of the Ichimoku cloud. This time the level to watch is 2912. Taken together with the H1 chart this creates a region from 2895-2912 that could be seen as potentially important resistance.

Uber shares went public amidst much fanfare just over a month ago, but the performance so far has not been what many had hoped. The first day saw the largest dollar value amount lost of any IPO in history and while the stock has found some support since then, it remains far from a success. Some better than expected results sent the market higher last week, but there’s been a steady drift down in the past 3 sessions. The stock has received some good news today with Evercore upgrading their view and rating. “We initiate on UBER with a $60 PT giving 40% upside on their “diversified growth at scale” or “platform as a product” and in LYFT we see a “ridesharing pure play” with a $74 PT leaving 28% upside. We see powerful near term catalysts for re-rating of both stocks on the back of a quietly improving pricing environment, incentive maturation, and we expect both to show profitability sooner than consensus is modeling. After a clearly rocky debut, we believe increased education on the business model of ridesharing will lead to multiple expansion.” The stock is trading higher by over 2% at the time of writing.

Our stock of the week is Tilray with a summary of our in-depth look as follows:

• - Tilray (TLRY.US) is one of the biggest Canadian cannabis companies

• - The company exports cannabis to Germany, Australia and New Zealand

• - Acquisition in early-2019 allowed company to double production capacity

• - Legalization of cannabis edibles in Canada may provide additional source of revenue

• - Stock jumped above the downward sloping trendline at the beginning of the week

The analysis can be viewed in full here.