After an extended period plagued by relative weakness, energy stocks are finally on the mend. The comeback has been as glorious as it has been fast, and Chevron Corporation (NYSE:CVX) is one of the best-looking stocks in the space. Though it’s taking a well-deserved breather, CVX stock is a rousing buy on its next breakout.
The recovery of energy stocks has been a long time coming. In a market as strong as the one we have, the downtrend gripping energy stocks for much of 2017 stuck out like a sore thumb. Oil was the one area that simply refused to toe the bullish line.
But the rotation seen over the past month saw too much capital flow into energy stocks. Since bottoming in mid-August, the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) has rallied 11%, climbing above all major moving averages except the 200-day.
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As one of the largest holdings for XLE, Chevron shares have responded in-kind. Except unlike the overall sector, CVX sits a stone’s throw from 52-week highs, making it a relative strength standout. Spectators wondering if demand for the stock may be drying up given its recent gains need only look at the sharp drop-and-pop from Monday.
Chevron’s rapid recovery from its quick trip to the 20-day moving average confirms dip buyers are still very much alive.
The past two weeks are creating a nice high base pattern. This consolidation is allowing CVX to work through overbought pressures while setting the stage for a clean breakout trade. If the stock can take out $118.40, then consider initiating new bull plays.
CVX Stock Breakout Trade
To capitalize on further oil strength, sell the Nov $115/$110 bull put spread for $1.05. To capture the max reward of $1.05, CVX only needs to sit above $115 at expiration.
The max risk (and cost) of the trade is $3.95.
As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
