ConocoPhillips Breakout Looms as Oil Stocks Continue Their Dominance

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COP stock - ConocoPhillips Breakout Looms as Oil Stocks Continue Their Dominance

Source: Martijn Koster via Flickr

With crude oil knocking on the door of $70, oil stocks are all the rage these days. Their merits are myriad, their muscle-flexing unmatched. Indeed, while the broader market continues its floundering, many energy companies are forming mouth-watering bullish patterns. Consider ConocoPhillips (NYSE:COP) top of the list. COP stock is forming a textbook high base breakout.

As is customary, let’s set the stage first with a look at the broader energy sector. This provides context and a backdrop for our foray into COP’s action. Since its mid-April moonshot to a new three month high, the Energy Sector SPDR Fund (ETF) (NYSEARCA:XLE) hasn’t given back an inch of its gains. Instead, insatiable buyers have been absorbing any and all profit-taking. The result is a sideways base that has allowed the 20-day moving average to catch-up and overbought pressures to ease.

Source: OptionsAnalytix

This has all the makings of a continuation pattern and suggests more XLE upside is in store.

Since COP is one of the top five holdings in XLE, it’s no surprise that its chart boasts similar characteristics. Unlike the broader sector, however, ConocoPhillips far surpassed its previous peak and now sits at a 3-year high complete with rising 20-day, 50-day, and 200-day moving averages.

Buyers gobbled up yesterday’s test of the 20-day, delivering a solidly bullish candlestick. I think a break of $67 and another advance will soon be upon us.

Source: OptionsAnalytix

Tight COP Put Spreads

With an implied volatility rank of 45%, option values are still sufficiently high to consider short premium strategies. And rather than selling a far-out-of-the-money put spread, let’s go close-to-the-money to capture a bigger potential payday. Sell the June $65/$60 bull put spread for $1.15 or better.

The initial $1.15 credit represents the max reward and will be captured if COP sits above $65 at expiration. The risk is $3.85 and will be forfeited if the stock slips below $60 by expiration.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/05/conocophillips-cop-stock-breakout-looms-as-oil-stocks-continue-their-dominance/.

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