War is back in the headlines.

Over the weekend, fighting between the US and Iran flared up again after a month of relative calm.

The US struck Iranian rocket launchers near the Strait of Hormuz. Iran retaliated by firing missiles at US military targets in Jordan. 

President Trump has since vowed another US response.

Crude oil has spiked more than 5% since Friday’s close on the news. Yesterday, the United States Oil Fund (USO) recorded its highest daily close since late May. 

Shares of energy stocks also popped on the news. The State Street Energy Select Sector SPDR ETF (XLE) is up nearly 4% this week on the news. 

Now, I have no idea how the situation with Iran will play out. I don’t pretend to be a “macro” expert. 

But the charts all point to both higher oil and energy stock prices.

Look at the recent performance of XLE. We can see that it’s broken out of a base that’s been building since late March.

The State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is just as strong as XLE. It too is breaking out of a multi-month base. 

The VanEck Oil Services ETF (OIH) is also waking up. It’s rallied 10% since last Wednesday and is trading at multi-month highs. 

We’re seeing strength across the energy spectrum. Different groups within the sector are now working. 

This is a bullish development. It makes me think this move in energy stocks will have legs. So, consider adding some energy exposure if you haven’t already.

At this stage in the move, I’m most interested in the oil and gas services and equipment names. 

You can play this group with a fund like OIH. I also like the big, liquid leaders with the space, specifically Baker Hughes (BKR), SLB Ltd. (SLB), and TechnipFMC plc (FTI).

Justin Spittler

Director of Trading, RiskHedge

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