To receive further updates on this Occidental Petroleum Corporation (NYSE:OXY) trade as well as an alert when it’s time to take profits, sign up for a risk-free trial of Power Options Weekly today.
This morning, I am recommending a bullish call option on Occidental Petroleum Corporation (NYSE:OXY), the oil and gas exploration and production company.
After two weeks of neutral readings, my indicators have begun to flash sell signals again this week.
We will enter a new month next week, which during a bullish trend has about a 70% chance of seeing the market move higher. That’s bullish for the very near term.
But the S&P 500 index tested its all-time highs set back in the third quarter of 2018, and the index has now begun to stall out at resistance in the 2,930-2,940 area. And while the Nasdaq index set another new all-time closing high yesterday, it also pulled back from its intraday high.
We are entering the month of May. As the old adage goes: “Sell in May, and go away.” This has not always been the best course of action over the past few years, but, after such a strong move higher over the past four months, I wouldn’t be surprised if traders start to take some profits off of the table before they head out on vacation.
If we’re still looking for bullish action in this market, we need to be smart. For that, I like the energy sector.
Oil is up But Energy Stocks Haven’t Followed
Oil prices have pulled back slightly over the past few sessions, but they are still on an upswing that should be supportive for the energy sector. But oil-related stocks have not followed the underlying commodity’s move higher.
Daily Chart of Energy Select Sector SPDR Fund (XLE) (top) and WTI Crude Oil Futures (bottom) — Chart Source: TradingView
As you can see in the chart above, WTI crude oil futures (lower panel) have registered a year-to-date gain of about 40%, while energy stocks (upper panel) — as measured by the Energy Select Sector SPDR Fund (NYSEARCA:XLE) — have only gained about 14% over that time.
XLE has generally been moving sideways despite the rise in crude oil, and this tells me that many energy stocks remain undervalued and could present good longer-term investing opportunities.
OXY presents a great opportunity because like other energy stocks, it is undervalued. Thanks to its bidding war with Chevron Corporation (NYSE:CVX) for Anadarko Petroleum Corporation (NYSE:APC), OXY is presenting a better entry point than other energy stocks.
OXY is Down, Not Out
As mentioned above, OXY made a bid on APC, the Permian Basin company CVX is trying to acquire. This move sent OXY’s price down, though the company’s CEO still argues OXY would be a better match for APC than than CVX.
If we look at the chart below, OXY found some support just under the $60 level, and it is starting to rise again. It has an earnings report approaching on May 6, after market close. If OXY rises more in anticipation of earnings (possibly on optimism from increased oil prices) we may be able to collect profits before then.
Daily Chart of Occidental Petroleum Corporation (OXY) — Chart Source: TradingView
Regardless of the outcome of the bidding war over control of APC, OXY is an oil company that benefits from rising oil prices. Like other energy stocks, OXY will eventually follow the price of crude oil higher. The price drop from the APC bidding war just gives us a good entry point, and that’s why I’m recommending a bullish call option this morning.
Buy to open the Occidental Petroleum Corporation (OXY) June 21st $67.50 Calls (OXY190621C00067500) at $1.30 or lower.
Follow our Facebook page to receive each Trade of the Day direct to your News Feed — and join the conversation.
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.