Following three weeks of bearish readings, my indicators are back to giving buy signals, and I want to recommend a bullish position on Williams Companies, Inc. (NYSE:WMB).
WMB is an independent energy infrastructure company based in North America. Its primary business is natural gas processing and transportation, but it does do some work with petroleum.
Early last week, I recommended a bullish trade on Apache Corporation (NYSE:APA), an oil company that was finding a bottom. I think WMB could be in a similar situation.
With positive trade news out this week, the oil and natural gas industries — both of which have been adversely affected by the trade war — could start to turn around in the short term.
Trade Goes From Bad to Good
Earlier this week, the first phase of the trade deal with China was in doubt. New tariffs on Chinese goods were scheduled to go into effect on Dec. 15, and administration officials wouldn’t confirm whether or not the tariff increase would be postponed.
White House economic advisor Larry Kudlow specifically went out of his way to note, “There is no definitive decision on that yet.” All the uncertainty kept the market from heading higher.
But yesterday, President Trump tweeted, “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”
And reports came in saying that the two countries have agreed to a limited trade deal that will roll back existing tariffs on Chinese goods and cancel the tariffs scheduled to take effect on Sunday, Dec. 15.
China will, in turn, purchase more U.S. farm goods.
But how does this help oil and natural gas companies?
In the case of oil, it is simply that many analysts believe the trade deal will improve global demand. If the trade deal eases pressure on the Chinese economy, the country may import more oil.
In the case of liquefied natural gas (LNG), the trade deal creates hope for future negotiations. China placed tariffs on LNG imports back in 2018, and in May 2019, it raised those tariffs.
While the first phase of the trade deal doesn’t specifically address these tariffs, it does give investors a reason to be optimistic.
WMB is at its Lowest Levels Since Christmas Eve, 2018
In the chart below, you can see that WMB is at its lowest levels since last year. But if you look closely, you’ll notice the stock has formed a bottom at just under $22. It seems that the stock doesn’t need to retest last year’s bottom at $20.50 — it has already found support.
Daily Chart of Williams Companies, Inc. (WMB) — Chart Source: TradingView
With the recent trade developments, I think the stock could push above the resistance level it has developed just above $23. With a cheap call option, traders can set themselves up for a profit once WMB turns higher.
Buy to open the Williams Companies, Inc. (WMB) Feb. 21st (2020) $24 Calls (WMB200221C00024000) at $0.50 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.