Energy stocks are reeling following this weekend’s Doha summit, which ended without an agreement.
Currently, West Texas Intermediate Crude oil is down 2.7% to $40.60, but what began as a hefty haircut has been downgraded to a mere trim. When the oil markets opened last night, crude crumbled to $39 before clawing its way back to its current perch.
So we could have been looking at an even bloodier open.
As you’d expect, energy stocks are taking it on the chin this morning. Investors are fleeing the scene just in case the Doha meeting marks the end of the nascent recovery in the energy markets.
If you’re willing to fade their fear and bet the oil stock recovery will continue following a bit of profit taking, consider these three plays. Rather than attempting to pick the winners and losers in the energy patch, we’ll use exchange-traded funds to make an industry-wide wager.
3 Plays for Energy Stocks: Market Vectors Oil Services ETF (OIH)
The Market Vectors Oil Services ETF (OIH) counts such big hitters as Schlumberger Limited. (SLB) and Halliburton Company (HAL) among its top holdings. While it has suffered tremendously during the oil route of the past year, things are starting to look up.
Since bottoming out at $20.46 in January, OIH has recovered nicely back above its 20-day and 50-day moving averages. The past six weeks have been spent in base-building mode. The $3 range between $25 and $28 is creating a nice little rectangle to trade around. Today’s down gap will likely take OIH towards the lower end of its range.
Consider buying July OIH $26 calls if the energy fund holds the $25 support level in the days ahead.
3 Plays for Energy Stocks: SPDR S&P Oil & Gas Explore & Prod. (ETF) (XOP)
Perhaps the best-looking chart of the bunch is the SPDR S&P Oil & Gas Explore & Prod. (ETF) (XOP).
Unlike OIH, the oil and gas fund carved out a higher pivot high on its latest ascent, showing firm conviction from buyers. Even better, the sharp rally was accompanied by heavy volume, showing broad participation in the buying frenzy.
XOP ended last week with a mild bout of profit taking, which will continue into today’s trading session. Provided the pullback holds the $30.75 support zone, consider it a low-risk buying opportunity.
Buy the XOP June $31 calls if buyers materialize for today’s drop in energy stocks.
3 Plays for Energy Stocks: Market Vector Russia ETF Trust (RSX)
The Market Vectors Russia ETF Trust (RSX) rounds out our trio of ideas. RSX boasts a close relationship between energy stocks on account of its heavy exposure to the commodity space. It has been recovering alongside OIH and XOP in recent weeks. And like its energy brethren, RSX is seeing a nice little pullback develop here.
Major support looms closely at $15.75. If the bulls can keep Russia above that level, consider this dip buyable.
Buying the June $16 calls should do the trick.
At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.