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This morning, I am recommending a bullish trade on Parsley Energy, Inc. (NYSE:PE), the independent oil and natural gas company.
My indicators are giving neutral readings at this time for the second week in a row. However, with the S&P 500 nearing its all-time high, I remain in the bullish camp.
I do not plan to buck an accommodative Fed or the bullish action in the market. Given the market’s dramatic rebound from the beginning of the year to date, some stocks have gotten ahead of themselves. But that doesn’t mean there aren’t any good investments to be made right now.
In particular, I think oil stocks have room to rise.
Rising Crude Prices and the Anadarko Petroleum Deal
If we look look at the price of crude oil in the chart below, you can see that it is holding steady in the $63-$64 per barrel range after breaking above its 200-day moving average earlier this month.
Daily Chart of Crude Oil Futures — Chart Source: TradingView
Oil and energy stocks, however, have not rallied along with the price of oil and remain depressed. I think this is likely because investors expect the price of oil to come back down. But if it stays elevated above the $60 level, I think energy stocks will begin to perk up again.
Chevron (NYSE:CVX)’s $33 billion purchase of Anadarko Petroleum Corp. (NYSE:APC) has also got investors excited about other companies operating out of the Permian Basin, an area stretching across western Texas and southeastern New Mexico where many independent oil companies operate.
PE just happens to be one of a few “pure-play” Permian Basin companies. Since investors think companies like PE could be targets for buyouts, I the stock may start to tick higher.
Breaking Out of the $17-$20 Range
PE has been trading between support at around $17 and resistance just under $20 since January, but it finally broke out on Friday, April 12, after CVX announced the APC buyout.
Daily Chart of Parsley Energy, Inc. (PE) — Chart Source: TradingView
Now the stock is trading above its 50-day moving average. It has encountered some resistance just above the $21 level, but optimism fueled by the APC deal and rising oil prices could push it higher.
I think PE is a good target for a bullish call option, which is why I’m recommending the following trade…
Buy to open the Parsley Energy, Inc. (PE) June 21st $22.50 Calls (PE190621C00022500) at $0.90 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.