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The rocketship rise in oil prices is finally seeing some profit taking worth talking about, and energy stocks are responding in kind. The Energy Select Sector SPDR (ETF) ( XLE ) shaved 2.19% of its gains Wednesday amid widespread selling in oil related equities.
Top holdings Exxon Mobil Corporation ( XOM ), Chevron Corporation ( CVX ) and Schlumberger Limited ( SLB ) all finished well off their highs.
But really, can anyone be surprised at the downturn in XLE? The glorious rebound in the oil patch was getting long in the tooth. Not to mention the fact that crude oil and XLE were both running into some pretty significant overhead resistance in the form of a descending 200-day moving average.
Those trying to divine the future for the energy stocks should keep the following in mind.
On a bullish note, the damage inflicted by the bout of profit taking striking XLE has been minimal. With the 20- and 50-day moving averages still pointing higher the bulls maintain the upper hand on the daily chart. Stock watchers taking their cues from this time frame ought to view this dip as a buying opportunity.
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On a bearish note, the weekly chart of XLE still remains in a downtrend. The fact that the energy sector ETF can rally almost 30% and still be in a weekly trend speaks volumes about just how much damage was inflicted in energy stocks during the epic oil route. Longer-term traders with an eye toward weekly patterns are likely viewing the recent rebound as a counter-trend pop that's destined to drop.
With conflicting signals abounding, the next move in XLE is a bit difficult to discern here. Bulls and bears alike have interesting plays. Which camp you decide to follow depends in large part as to which time frame you believe will prove prescient.
A Pair of XLE Plays for All
Here are two trade ideas to consider, one for bulls and one for bears.
Energy stock bulls could use the recent pullback to buy Jun $61.50 calls for $3.10 or better. The risk is limited to the initial debit while the reward is unlimited. In timing the entry consider waiting for signs that XLE is pivoting higher in the coming days.
Traders looking for a renewed plunge in the energy sector could buy the Jun $62 puts for $3.40 or better. The risk is limited to the initial debit, while the reward is unlimited until the ETF reaches zero.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
