Bulls Shrug Off Iran Strikes, Recover from Initial Oil Jolt

US Attacks Iran Nuclear Locations, Leading to Crude Oil Spike

Weekend oil futures sky-rocketed initially after the United States attacked three Iranian nuclear sites using seven B-2 stealth bomber military aircraft, which dropped massive ‘bunker-buster’ bombs capable of penetrating facilities built deep into the ground. The B-2 stealth bombers, worth more than $2 billion a piece, traveled more than 30 hours from the United States to Iran and went undetected. The attacks come after multiple attacks on Iran from Israel, and after Trump administration officials accused Iranian government officials of dragging their feet on ongoing nuclear negotiations. Overall, the mission was successful and executed flawlessly. However, several Trump administration members like Vice President JD Vance and Secretary of State Marco Rubio have voiced concerns about Iranian retribution and have warned against it.

Price Action is King

Initially, US equity index futures plummeted while oil futures rose at the overnight futures open at 8 pm EST on Sunday, underscoring the ‘shoot first, ask questions later’ knee-jerk mentality of many Wall Street traders.  However, as is often the case with scary and unexpected headlines, cooler heads prevailed and the collective market and pricing tend to know more than the headlines. Briefly after the futures open, Nasdaq futures shook off the news, bounced more than 200 points, and flipped green. Meanwhile, crude oil futures, which were up more than 5% at the open, have faded in a waterfall-like fashion and are flat since Friday.

Two things are abundantly clear from the price action:

1.       The Bull Market is Resilient and Intact: US equity markets have done a 180-degree flip since the first quarter. Then, any semblance of ‘bad news’ (often tariff-related) sent stocks down 3-4%. Today, stocks recover rapidly after bad news, signaling that bulls are in control of the market.

2.       The Market Believes Iranian Retribution is Unlikely: While it’s impossible for investors to predict the future, price action is the closest thing an investor has to a crystal ball. The dramatic fade in oil prices shows that investors do not believe that Iran will seek hardcore retribution, such as shutting down “The Straight of Hormuz” (an important choke point between the Persian Gulf and the Gulf of Oman) or attacking US troops.

Technical Picture: Price Levels to Watch

QQQ Chart Analysis

When determining what price levels to monitor, the best thing a technician can do is “look left” on a chart. For the major US indices and the Nasdaq 100 Index ETF (QQQ), the key level has been the 21-day, intermediate-term moving average. During the tariff-induced correction, the 21-day moving average acted as a ceiling the entire time. Since then, the 21-day moving average has acted as a floor for the entire market rally off the lows. If bulls can support price at this level this week, it will prove they are in control.

USO Chart Analysis

TheUS Oil Fund ETF (USO) will be another tell this week, especially from a geopolitical perspective. USO is approaching multi-year resistance after the Iran/US tensions led to increased prices over the past few weeks. Equity bulls will want to see a rejection of oil prices at these levels, which will signal that tensions between the US and Iran are easing.

Stocks to Watch

·       Advanced Micro Devices (AMD) was upgraded by Melius to Buy, with the analyst citing the ‘AI Inferencing Wave.’

·       Tesla’s (TSLA) highly-anticipated robotaxi service finally launched this weekend after a series of delays.

·       Hims and Hers Health (HIMS) plunged more than 17% after Novo Nordisk (NVO) terminated their collaboration with the company.

Bottom Line

Price action is the best ‘tell’ that exists on Wall Street. The resilient price action in the stock market suggests that geopolitical fears are likely overdone.

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This article originally published on Zacks Investment Research (zacks.com).

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