Bombs are falling.
Over the weekend, the US and Israel launched strikes against Iran, sparking a fast-moving conflict across the Middle East.
Now Iran is threatening to shut down the Strait of Hormuz—the narrow shipping lane that carries roughly 20% of the world’s oil supply. Tankers are already avoiding the area.
It’s an unfortunate situation. No one except for politicians ever wants war.
Still, we can’t let our emotions get the best of us. We have to remain objective. It’s the only way to navigate these sorts of environments.
So, what does the war with Iran mean for the markets?
There are many implications. The obvious impact is the disruption to global energy markets.
The Middle East is one of the world’s most important oil-producing regions. This is why oil spiked as much as 16% this week.
We’ve also seen a big uptick in volatility. Yesterday, the Volatility Index (VIX) tagged 28... its highest reading since November.
Neither of these reactions should come as a complete surprise. But there’s a market move underway that few traders are talking about...
And that has to do with aluminum.
The Gulf Cooperation Council—which includes countries like the UAE, Bahrain, Saudi Arabia, Qatar, and Oman—is one of the world’s largest suppliers of aluminum. It accounts for about 8% of the world's production.
So, like oil, the price of aluminum jumped on the war headlines. Yesterday, aluminum rallied 2.9%. Today, it’s up another 2.2% and hitting new four-year highs.
Aluminum stocks also rallied on the news.
Century Aluminum Co. (CENX) is up 3% on the day, and it’s on the verge of breaking out of a multi-week base:
Source: StockCharts
Constellium NV (CSTM) is up nearly 4% on the day.
It’s also on the cusp of a big breakout:
Source: StockCharts
I believe today’s pops are the start of a much bigger move.
You see, aluminum isn’t just a “war trade.” It’s part of a bigger trend we’ve been discussing for some time… the “commodity super cycle.”
Basically, I see everything from oil stocks to uranium miners to aluminum plays heading much higher.
Just take a look at this chart. It shows the performance of the State Street SPDR S&P Metals and Mining ETF (XME).
XME is trying to push off its rising 50-day moving average as we speak:
Source: StockCharts
If XME breaks out, as I expect it to, aluminum and other “rock stocks” should perform well despite the ongoing conflict.
Situations like this are exactly what makes my RiskHedge Live trading room so valuable.
Markets can move fast during geopolitical events. One headline can send oil, metals, or defense stocks ripping higher—or lower—in minutes.
Inside RiskHedge Live, members see the trades I’m making in real time, as opportunities develop. I explain exactly how I’m positioning our portfolio, and how to adapt no matter which way the market moves.
If you’d like to follow along and see how I’m navigating this fast-moving environment, you can learn more about RiskHedge Live here.
Justin Spittler
Chief Trader, RiskHedge
