The entire oil sector is starting to look a little stronger as growth expectations pick up. From a sector-rotation perspective, this is about the right time for that to happen and should help support the current rally. We are opening a position on Marathon Petroleum Corp. (MPC) following a breakout of an inverted head-and-shoulders pattern. That pattern was completed just following its earnings report and has been shadowed by several other companies in the sector. Our upside projection at this point is $90 in the very short term where we would not be surprised to see some consolidation.
Oil stocks can be sensitive to a stronger dollar, which has been an issue since February. Worries that the Fed may start to taper a little have been partially driving that strength. This is a concern to us and is probably one of the biggest risks in the trade. However, the decline in the dollar Monday near its historical high is encouraging and we feel it supports our timing of this position. We will keep a close eye on both the energy-sector and the dollar for signs of trouble, but for now this looks like an ideal entry opportunity triggered by a classic bullish technical pattern.
Recommendation: Buy to open the MPC June 85 calls (MPC130622C00085000)
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