How Professional Traders React to Oil Price Shocks: The 3-Phase ASX Playbook
- Christopher Hall
- 2 days ago
- 10 min read
Published: March 2026 | Christopher Hall interviews Gary Glover
When a geopolitical shock triggers an oil price spike, professional traders typically sell energy stocks into the initial excitement while retail investors rush to buy them. Historical data across conflicts from Iraq to Russia-Ukraine shows equity markets fall 5–7% in the first 10 days, recover to flat within 35 days, and are up 8–10% within 12 months. The professional edge is not predicting the conflict — it is understanding the three phases that follow every oil shock, and positioning accordingly.
Why Most Traders Get Oil Shocks Wrong
When a Middle East conflict hits over a weekend, the Monday morning instinct for most retail investors is identical: buy energy stocks. Oil is spiking. Defence names are surging. The narrative feels obvious and urgent.
But professional traders — the institutions, the fund managers, the experienced active investors — are frequently doing the exact opposite. They are selling into that heat.
This is not contrarianism for its own sake. It is pattern recognition built on decades of historical data across every major geopolitical shock that has moved the oil price. Understanding what the data actually shows — and why professionals respond the way they do — is one of the most actionable edges an ASX momentum trader can develop.
This framework, drawn from Gary Glover's analysis at Novus Capital, breaks the professional response into three distinct phases.
The 3-Phase Professional Response to an Oil Shock
Phase 1: The Spike (Days 1–10) — Professionals Sell, Retail Buys
The immediate aftermath of a geopolitical shock almost always produces the same market behaviour. Energy stocks gap up sharply on the open. Defence names surge. Retail investors, reacting to headlines, flood into both sectors.
Institutional traders — who have studied the historical data — recognise this as a selling opportunity, not a buying one.
The data across conflicts including the Iraq War, the Venezuela crisis, and the Russia-Ukraine conflict shows a consistent pattern: equity markets fall approximately 5–7% in the first 10 days following a major geopolitical oil shock.
The reason professionals sell into the energy spike is not because they are bearish on energy long-term. It is because they understand two specific technical phenomena that consistently follow the gap:
1. Gaps almost always fill. Oil stocks that gap up aggressively on geopolitical news have a strong historical tendency to retrace and fill that gap before resuming any upward trend. As Gary Glover observed: "You'll struggle to find gaps that don't get filled" when reviewing the long-term charts of ASX energy names like Santos (STO.ASX) and Woodside Energy.
2. The shock fade. Defence stocks and energy names that spike on geopolitical news frequently give back a significant portion of those gains in the days that follow, as the immediate panic subsides and markets reassess the duration and severity of the conflict.
This is not a signal to be bearish on energy. It is a signal to be patient — and to let the trade come to you.
For momentum traders studying how to identify leading sectors for VCP pattern trading, the spike phase is a reminder that relative strength confirmed over weeks is more reliable than price action confirmed over hours.
Phase 2: The Fade (Days 10–35) — Patience Is the Position
The second phase is where most retail traders make their second mistake. Having missed the initial spike, they wait for a pullback — and then buy the first sign of stabilisation, often too early.
The historical data is instructive here. Within 35 days of a major geopolitical oil shock, equity markets have historically returned to flat from their pre-conflict levels. This means the 5–7% drawdown in Phase 1 is typically recovered within five weeks.
For energy stocks specifically, this phase produces the gap fill Gary Glover describes. The gap created on the initial shock news is gradually closed as short-term traders take profits and the market normalises its assessment of the conflict's duration and economic impact.
The Iraq War of 2003 provides the most dramatic example from Gary's data. The market fell for only a few days before reversing sharply — and was up 13% within three months. The conflict resolved faster than markets initially priced, compressing the fade phase dramatically.
The key professional discipline in Phase 2 is watching the underlying base structure — not the daily price action driven by news headlines.
For ASX energy names like Karoon Energy (KAR.ASX) and Santos (STO.ASX), the relevant question during the fade phase is not "is the gap filling?" but rather: "Is the longer-term basing pattern intact?"
This is where technical pattern analysis provides genuine edge over purely news-driven trading. Understanding how Mark Minervini's SEPA methodology identifies high-quality base structures helps traders distinguish between a stock genuinely building a foundation for a major move versus one simply bouncing in a downtrend.
Phase 3: The Resume (35 Days to 12 Months) — Structure Over Sentiment
The third phase is where patient, technically-minded traders build their most rewarding positions.
Historical data across the conflicts Gary reviewed shows equity markets are up 8–10% within 12 months of a major geopolitical oil shock. For energy stocks with strong underlying base structures, the returns are frequently significantly higher.
The professional framework for identifying which energy stocks to own in Phase 3 comes down to one question: which names were already building constructive bases before the shock occurred?
This matters because the geopolitical catalyst accelerates a trend that was already forming — it does not create one from scratch. Stocks that were already showing accumulation patterns, rising volume, and series of higher lows before the conflict hit are structurally better positioned to benefit from the sustained energy thematic than stocks that were simply dragged higher by the headline spike.
Applying the Framework: Santos (STO.ASX) and Karoon Energy (KAR.ASX)
Gary Glover's analysis of both Santos and Karoon Energy in March 2026 illustrates exactly how professionals assess the Phase 3 opportunity.
Santos (STO.ASX) was displaying a 0123 basing pattern — a series of higher lows building a foundation over several months — before the Middle East conflict emerged. The pattern shows four sequential data points of accumulation: an initial low (0), a higher low (1), another higher low (2), and a third higher low (3). This is the type of base structure that VCP pattern traders recognise as a precondition for a sustained momentum move.
Karoon Energy (KAR.ASX) had built an even more developed 01234 base pattern — five sequential higher lows constructed over approximately 12 months from December 2024. The pattern showed a first higher low in April 2025, a second in October 2025, and further accumulation through early 2026. This is a textbook example of the extended base structures that precede some of the most explosive momentum moves on the ASX.
The professional response to both stocks in Phase 1 was to recognise the gap-up as a short-term selling opportunity while maintaining conviction in the longer-term base structure. The gap would likely fill. The base would likely hold. And Phase 3 would offer a better entry than the gap-up spike.
For traders studying how to identify VCP patterns on ASX stocks, this framework demonstrates a critical principle: the best entries come after the excitement fades, not during it.
The Gold-to-Oil Ratio: An Additional Confirming Signal
One technical indicator Gary Glover identified several months before the March 2026 conflict added further conviction to the energy thesis: the gold-to-oil ratio.
When gold is significantly outperforming oil on a relative basis, it signals the market is pricing in deflationary or uncertainty-driven demand for gold over the inflationary energy trade. When that ratio begins to shift — with oil gaining ground relative to gold — it historically signals the early stages of an energy sector leadership cycle.
Gary noted the ratio had begun shifting in early 2026, providing a macro-level confirming signal for the technical base structures he was already observing in individual energy names. This type of multi-timeframe confirmation — macro signal aligned with individual stock base structure — is a hallmark of how Minervini's sector strength method identifies high-probability momentum opportunities.
The Institutional vs Retail Behaviour Gap: Why It Persists
Understanding why this gap between professional and retail behaviour persists is as important as knowing it exists.
Retail investors operate on narrative. The headline is clear: conflict in the Middle East, oil price spiking, buy energy stocks. The logic feels sound and the urgency feels real.
Institutional traders operate on data and pattern recognition. They have studied what happens in the first 10 days, the first 35 days, and the first 12 months of every comparable historical event. They know the gap will likely fill. They know the initial spike is frequently a selling opportunity. And they have the discipline to act on that knowledge even when the narrative pressure is moving in the opposite direction.
This behavioural edge is one of the most consistent in markets — and it is fully accessible to individual traders who take the time to study historical patterns. Understanding how systematic VCP trading process works versus opinion-based reactive trading is a foundational step in developing this edge.
The professional response to an oil shock is not cleverness. It is preparation.
Practical Application: The 3-Phase Checklist for ASX Traders
Phase 1 — Spike (Days 1–10):
Resist the impulse to chase gap-up moves in energy names on geopolitical news
Identify which energy stocks had strong base structures before the shock
Note the gap levels on key ASX energy names (STO, KAR, WDS) — these are likely future targets for gap fills
Review VCP trade execution principles for position sizing discipline
Phase 2 — Fade (Days 10–35):
Monitor gap fill progress on energy names
Assess whether pre-existing base structures (0123, 01234 patterns) are holding
Watch for volume behaviour — declining volume on the fade is constructive; elevated selling volume is a warning
Begin building a watchlist of names showing the strongest relative base integrity
Phase 3 — Resume (35 Days to 12 Months):
Look for consolidation after the gap fill — tight price action on low volume is the setup
Enter on first signs of renewed strength — a break of a recent swing high on elevated volume
Size positions according to Minervini's position sizing framework
Hold with a trailing stop that respects the base structure, not the short-term noise
The Broader Energy Thematic Context
The March 2026 Middle East conflict did not create the ASX energy thematic. It confirmed it.
Gary Glover had identified energy as the next market-leading sector on the ASX in December 2025 — three months before the geopolitical catalyst emerged. The data centre energy contract announcement out of the United States in February 2026, requiring confirmed energy supply agreements before new data centre construction could proceed, provided the first major structural catalyst. The Middle East conflict provided the second.
This sequencing matters. The best thematic trades begin with structural change, get confirmed by specific catalysts, and are then amplified by unexpected events. Traders who identified the energy thematic in December 2025 — before either catalyst — were positioned to respond to both with clarity rather than panic.
Understanding how to identify emerging thematic opportunities before the market fully prices them is one of the highest-value skills an ASX momentum trader can develop.
Frequently Asked Questions
What does historical data show about stock markets after a geopolitical oil shock? Historical data across conflicts including the Iraq War, Venezuela, and Russia-Ukraine shows equity markets typically fall 5–7% in the first 10 days, return to flat within 35 days, and are up 8–10% within 12 months of the initial shock.
Why do professional traders sell energy stocks when geopolitical conflict drives oil prices higher? Professional traders recognise that gap-up moves in energy stocks on geopolitical news historically tend to fill — meaning prices retrace back to pre-gap levels — before resuming any sustained uptrend. Selling into the spike and re-entering after the gap fills is a historically more reliable approach than chasing the initial move.
What is a 0123 or 01234 basing pattern in ASX energy stocks? A 0123 or 01234 basing pattern is a series of consecutive higher lows in a stock's price structure, indicating accumulation taking place over an extended period. Each number represents a progressively higher low point. Santos (STO.ASX) was displaying a 0123 pattern and Karoon Energy (KAR.ASX) a 01234 pattern in early 2026, suggesting institutional accumulation was already underway before the Middle East conflict emerged.
How long does an oil shock impact on equity markets typically last? Based on historical data reviewed by Gary Glover, the short-term negative impact on equities from a geopolitical oil shock typically resolves within 35 days, with markets returning to pre-shock levels. The Iraq War of 2003 was a notably fast resolution — markets fell for only a few days before recovering 13% within three months.
What is the gold-to-oil ratio and why does it matter for ASX energy stocks? The gold-to-oil ratio measures the relative performance of gold versus oil. When oil begins gaining ground relative to gold — the ratio shifts — it historically signals the early stages of an energy sector leadership cycle. Gary Glover identified this ratio beginning to shift in early 2026, providing a macro-level confirmation of the emerging ASX energy thematic.
What is the difference between buying an energy stock on a geopolitical spike versus buying after the gap fills? Buying on the spike means paying elevated prices driven by short-term panic and sentiment. Buying after the gap fills means entering closer to the pre-shock price levels, with the advantage of understanding whether the underlying base structure has remained intact through the volatility — providing a significantly better risk-to-reward ratio.
How do VCP patterns apply to ASX energy stocks during geopolitical events? VCP (Volatility Contraction Pattern) principles apply directly to energy stocks after a geopolitical shock. The ideal setup is a stock that had already formed a constructive base structure before the event, experiences a gap-up spike, fades back to fill the gap with declining volume, and then begins a tight consolidation — forming a VCP setup that can be entered on a breakout with a clearly defined stop. See our Complete VCP Trading Guide for ASX Markets for full pattern criteria.
About This Analysis
This framework is drawn from Gary Glover's weekly market analysis, published through Finer Market Points. Gary Glover (AR 259215) is an Authorised Representative of Novus Capital Limited (AFSL 238 168), Level 24, 56 Pitt Street, Sydney NSW 2000. This article is extracted from an interview with Gary Glover (AR 259215) is an Authorised Representative of Novus Capital Limited (AFSL 238 168). Presenter may hold positions in discussed securities for educational demonstration purposes
Educational Disclaimer: This content is for educational purposes only and does not constitute financial advice. Past performance is no guarantee of future results. Consider your financial situation and seek professional advice before making investment decisions.
Finer Market Points Pty Ltd, CAR 1304002, AFSL 526688, ABN 87 645 284 680. This general information is educational only and not financial advice, recommendation, forecast or solicitation. Consider your objectives, financial situation and needs before acting. Seek appropriate professional advice. We accept no liability for any loss or damages arising from use.
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