Trade of the Day: Apache (APA)

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Our indicators are giving neutral to bearish readings, a downgrade from last week’s bullish readings. We are seeing the market starting to move down in its trading range.

The Nasdaq, via the PowerShares QQQ Trust (QQQ), is actually in a bullish formation. However, the S&P 500, via the SPDR S&P 500 ETF (SPY), and the Dow Jones Industrials, via the SPDR Dow Jones ETF (DIA), are in neutral to negative formations. If either of the lagging indices were to make a decisive move higher, that would be a bullish development. But they would have to be meaningful breakouts, similar to what we saw in the Nasdaq last week when it broke above its overhead resistance level.

While this might otherwise be a neutral story, the market is flashing signs of danger stemming from earnings season.

Companies that have reported weaker-than-expected earnings have experienced severe sell-offs that are relatively worse than quarters past. We can look at Yelp Inc (YELP) and Twitter Inc (TWTR) as two significant examples, but, in general, stocks have been getting hammered on bad earnings, which suggests a kind of “toppiness” in the market.

However, against that backdrop, the first five days of the month of May have historically been bullish, and there is about a 70% chance the market will move up in the next five trading sessions. But I’m staying bit light and nimble, because the further we go into May, the more bearish market sentiment will be, as the “sell in May and go away” mindset comes into play.

Treasury bonds (TLT) are breaking down, and the U.S. dollar (USD) is starting to break down as well, though it is currently residing at support and may linger at current levels for a bit before languishing lower.

Of course, there are always pockets of strength in any market and, looking at commodities, oil has broken out from a lot of overhead resistance. I am generally returning to a bullish stance on oil and related stocks — and today’s trade is firmly in that camp.

Buy the Apache Corporation (APA) June 75 Calls (APA150619C00075000) at about $0.90. After entry, take profits if the stock price hits $73.30 or the option price hits $2.50. Exit if the stock price closes below $65.90.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/oil-trade-of-the-day-apache-apa/.

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