A Bearish Opportunity in the Energy Sector

NFX hit long-term resistance

By Ken Trester, Editor, Power Options Weekly

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Last week, I told you about why I like the health care sector. But there is another sector with a lot of opportunity for traders as well.

Energy stocks struggled in late October, and today I am recommending a bearish trade on Newfield Exploration Company (NYSE:NFX), an independent energy exploration and production company.

There are several potential opportunities in the energy sector. A lot of the energy stocks were hit very hard when crude oil fell from its recent highs, but the bigger companies in the sector usually do a decent job of making profits regardless of what’s going on in the underlying oil market.

I’ve also been looking at the oil refiners, which tend to be pretty resilient, as they produce the gasoline that we use each and every day.

But before trading on those larger companies, I’d like to see oil turn around and move higher first.

If crude oil moves higher in the short term, that would be good for exploration companies like NFX. The company also produces natural gas and natural gas liquids, which may start rising again.

In general, however, I’m still skeptical of this market.

And since NFX is smaller than companies like Exxon Mobil Corp (NYSE:XOM) and Marathon Oil Corp (NYSE:MRO), it could struggle as it recovers from the October selloff.

From a technical point of view, the stock gapped higher following its last earnings announcement on Oct. 31.

However, as you can see in the chart below, shares hit longer-term resistance at about $23.50 in early November before rolling over again.

Daily Chart of Newfield Exploration Company (NFX) — Chart Source: TradingView

 

Furthermore, short-term resistance at the $22 level held during Friday’s move higher, so I’m expecting NFX to continue its slide this week.

The stock should easily fill the rest of the gap down to $20 per share, and I wouldn’t be surprised to see it retest its recent lows around $19 after that.

Buy to open the Newfield Exploration Company (NFX) Jan (2019) 19 Puts (NFX190118P00019000) at $0.65 or lower.

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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.


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