The Iran Dilemma Puts Investors in an Unsettling Position
Here's what the market is telling us and why this may be the best game plan today.
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NYSE trader
Tuesday is one of those days when I'm not going to do much because I don't see any edge. I have no interest in intraday scalp trades and see no reason to add to position trades or longer-term investments.
The problem is that the market is struggling with a single unresolved policy question. If the U.S. bombs Iranian infrastructure tonight, it may end the war but it will also destroy oil production capacity that a post-war recovery will need.
President Trump's reluctance to escalate has been deliberate. The strategy has been to apply enough pressure to force a negotiated end while preserving enough of Iran's economy that a new regime could rebuild. If regime change isn't coming, the calculus shifts. Destroying their economy may be the better option and that is looking increasingly likely.
This dilemma has produced a series of postponed deadlines whenever negotiations show a flicker of progress. Sooner or later, though, Trump has to draw a hard line and Tuesday night at 8 p.m. ET is looking like it.
What the Market Is Telling Us
That leaves investors in a difficult and unsettled position. The optimism about an Iran resolution that has propped up equities is running into a harder reality. Oil is hitting new recent highs as I write, which suggests the market is starting to believe there is no TACO trade this time. Interestingly, oil stocks aren't doing much. They have likely already priced in much higher oil.
Breadth is running poor early Tuesday with just 35% of stocks in positive territory. The pullbacks underway are not deep enough to attract value buyers, and it is too soon for dip buyers given short-term overbought conditions.
My Game Plan
With all of this international intrigue and uncertainty, there is no good reason to put capital to work right now. We still have no confirmation of a new uptrend and the risk that this is a failed bounce is growing.
My plan today is to do nothing. We have to wait and see what unfolds tonight and then react to the price action in the days ahead. I'm watching my positions and will take some stops if necessary, but I already have a good amount of cash on hand in client accounts and will stay patient.
Related: Bitcoin Price Reaction to Iran Deadline Will Be Telling
At the time of publication, Rev Shark had no positions in any securities mentioned.
