Trade of the Day: CVX Stock Ready to Spring Higher

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When the market pushed to new highs for 2016 on Monday, energy stocks were in the driver’s seat. A combination of U.S. dollar weakness, persistent strength in crude oil futures and the promise of a delayed interest rate hike thanks to Friday’s disappointing jobs report all played a role.

As a result, the Energy Select Sector SPDR (ETF) (XLE) has broken out of a three-month narrowing pennant formation, setting up a run at its late-April highs and possibly even the November highs near $70.

XLE Chart
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In particular, oil services plays are leading the way higher in an impressive fashion. The VanEck Vectors Oil Services ETF (OIH) gained 7.2% on Monday for its best one-day gain since the rebound off August’s flash crash low.

OIH has now returned to its late 2015 trading range, up more than 45% from its January lows but still down roughly 45% from its summer 2014 pre-oil meltdown highs.

OIH Chart
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While there are many attractive trades among OIH components like Halliburton Company (HAL) and Baker Hughes Incorporated (BHI), I am recommending a long play in Dow Jones Industrial Average component Chevron Corporation (CVX).

CVX Stock Chart
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After an impressive gain of more than 30% from its January low, CVX stock has coiled up tightly near the $100 level since late April. This occurred as the rally in crude came under pressure from a lack of progress toward a Russia-OPEC oil supply freeze deal and ongoing uncertainty about the health of the global economy.

But decreasing expectations of an interest rate hike by the Federal Reserve have resulted in U.S. dollar weakness, giving traders yet another reason to push the price of crude oil, and commodities in general, higher. For its part, CVX stock appears ready for a run higher, making the July $100 CVX calls worth a look.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/chevron-corporation-cvx-stock-trade-day-2/.

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