Geopolitics: dont celebrate victory without these technical thresholds for TVC:USOIL by Swissquote

The geopolitical situation has evolved significantly this week, and although we are still far from a global return to peace in the Middle East, international stock markets are trying to stabilize and stay above the low point established at the end of March.

This low point in international stock indices marked 1 month after the start of the military operations that began on Saturday, February 28th. Is this the low point of the sell-off? This question deserves a reasoned answer both from a fundamental and technical perspective.

In this new article, I propose a focus on technical analysis, which means determining the technical levels at which strategic financial assets need to reach to truly believe in a low point of the stock market.

I have selected the following strategic assets: oil, natural gas, urea fertilizer, the US 2-year bond rate (which best anticipates the Fed’s future monetary action), the S&P 500, Dow Jones, and Nasdaq 100 stock indices, the US Technology sector index, and the US dollar (DXY).

The principle is that these strategic assets must return to a minimum level to truly believe in the definitive end of the sell-off related to the events in the Middle East.

In detail, the energy market is the first barometer. A sustainable decline in oil prices, with WTI below $94 and ideally close to $80, would signal a significant reduction in geopolitical risk premium.

The same logic applies to Brent and European natural gas, where a return below critical thresholds would indicate a progressive normalization of flows and expectations.

Furthermore, critical fertilizers like urea play an advanced role in the global economic chain. Stabilization of these prices would indicate that production cost pressures are beginning to ease, a prerequisite for global inflationary relief.

On the bond side, the US 2-year rate must stop diverging upward from the Federal Reserve’s interest rate, as this would signify market anticipation of a rate hike, which is incompatible with a low point in stock market indices.

Regarding stock indices, the key technical signal remains regaining the 200-day moving averages. A sustained break above these levels on the S&P 500, Nasdaq, and Dow Jones would indicate a return of long-term buying flows and an improvement in market structure.

Finally, the US dollar must weaken in relative strength. A DXY below its resistance zone would indicate an easing of global financial conditions, favorable to risky assets.

It is only the convergence of all these signals that will validate, with a high degree of confidence, that the stock market’s low point has indeed been reached. The table below reveals the synthesis of minimum and ideal technical thresholds to reach in order to have a strong conviction that the geopolitical-related stock sell-off is truly over.

[Context: This article provides an analysis of the current geopolitical situation’s impact on international stock markets and suggests strategic financial assets to monitor.]

[Fact Check: This content is intended for individuals familiar with financial markets and is for informational purposes only. It does not constitute investment advice or a product of research from Swissquote or its affiliates.]