Since being left for dead, crude oil has cobbled together quite the respectable rally. At $46.60, black gold has now rallied 11% off its 52-week lows over the past eight trading sessions. Color me impressed, particularly considering how hated oil was. Energy stocks have been following in kind, albeit with less zest than the commodity.
And that’s what’s catching my eye here. The energy sector has been in a downtrend for all of 2017 with a string of failed rally attempts. Seven times it’s tried to right the ship, and seven times it’s failed. So what makes the current rebound any different?
Nothing. And that’s why if you’re a trend trader (a follower of the notion that a trend in motion stays in motion), this rally should be viewed as one destined to fail.
But therein lies opportunity. Some energy stocks and exchange-traded funds are now running headlong into resistance, and that means opportunity lurks for traders willing to harness their inner bear.
Energy Stocks to Trade: United States Oil Fund (USO)
Click to Enlarge
If we want to short the oil complex, there’s no more direct route than betting on oil directly. And for equity traders like you and I, that means playing the United States Oil Fund LP (ETF) (NYSEARCA:USO).
USO is the best proxy stock traders have for a direct bet on crude oil. The fund owns oil futures and therefore boasts a solid correlation with the spot price of crude, at least in the short run.
USO is going on its seventh up-day in a row. And with the descending 50-day moving average looming overhead, I suspect the end of the rally is nigh. If you’re willing to bet USO has trouble rallying much further from here, sell the Aug $10 calls for 20 cents or better.
Energy Stocks to Trade: Halliburton Company (HAL)
Click to Enlarge
For our next selection, we’re turning to the oil services space. Halliburton Co (NYSE:HAL) shares have been carving out lower lows for months now. Its descent is dragging the 20-day and 50-day moving averages lower. And its current rally has been lackluster at best.
HAL stock has seen multiple distribution days over the past month suggesting institutions aplenty are unloading shares. And that is likely to continue weighing on shares. While crude oil has put in a robust pop, HAL has only been able to rally four days, and the gains have been mediocre at best.
I suspect this rally is destined to fail like so many of its predecessors. If HAL falls below a prior day’s low, buy the Aug $45 put option.
Energy Stocks to Trade: Vaneck Vectors Oil Services ETF (OIH)
Click to Enlarge
If picking individual energy stocks doesn’t tickle your fancy, how about simply betting against the entire sector in one fell swoop? One of the worst performing energy-based ETFs this year has been the VanEck Vectors Oil Services ETF (NYSEARCA:OIH).
It boasts Schlumberger Limited. (NYSE:SLB), Halliburton Company (NYSE:HAL), and Baker Hughes Incorporated (NYSE:BHI) among its top holdings.
OIH is popping quite nicely today, up 2.66% in early morning trading. Unfortunately, for bulls at least, OIH is still well-entrenched in a downtrend. As such, I’d be a seller of this rally. Since the fund carries relatively high implied volatility, bear call spreads are a decent bet here.
Sell the Aug $27/$29 bear call spread for 32 cents or better.
At the time of this writing, Tyler Craig held bearish option positions in USO.
