Equities are off to a rough start for the week. The selling pressure is weighty in energy stocks, which have lost their leadership status after a stellar performance in Q1. The reversal of fortune is weighing on the Russell 2000, which counts energy as one of its highest sector weightings.
Oil isn’t helping matters much either, though its downturn hasn’t been as severe as the stocks that follow it. To wit, while crude futures are down 1.37% in midday trading, the Energy Sector ETF (NYSEARCA:XLE) is off 3%.
I wanted to spotlight three of the weakest energy stocks to consider selling in light of the carnage. This applies both to existing shareholders that aren’t willing to ride them into downtrends, as well as spectators looking for easy marks to sell short.
The former group will find today’s support breach troubling, and the latter group will find it tantalizing. Remember, one trader’s pain is another’s potential gain.
That said, here are three vulnerable energy stocks that deserve the bears’ attention.
Don your spectacles and join me for a closer inspection of each price chart.
3 Energy Stocks to Sell: Conoco Phillips (COP)
Conoco Phillips is the largest company on our list of energy stocks to dump. Its size did little in helping it stay aloft on Tuesday. The other giants like Exxon Mobil (NYSE:XOM) and Chevron (CVX) fared far better. COP’s stock price slipped below the 50-day moving average last Friday but still had a chance to hold critical support at $50. Doing so would have kept the intermediate-term uptrend alive.
But, alas, it wasn’t meant to be.
Today’s -4.3% drubbing cracked support and officially places Conoco Phillips in a daily downtrend. The increased volume suggests institutions were leaning heavily on the sell button throughout the session. The path of least resistance has officially shifted from higher to lower.
Implied volatility is in the tank at the 6th percentile, and that makes long put spreads the way to go.
The Trade: Buy the June $50/$45 bear put for $2.30
Occidental Petroleum (OXY)
The trend reversal for OXY is further along than COP. I’m a fan of using the 50-day moving average as a guide for intermediate trends. Breaking it is a huge red flag. Occidental Petroleum fell below the 50-day on April 5 and has been trending lower ever since. Today, the selling reached a fever pitch, driving prices down another 6% after breaking another pivot low.
We could still see mild bounces along the way, but there isn’t much support until we hit $20. That leaves plenty of room for bears to profit.
Implied volatility has risen over the past two weeks to 28%. As such, I prefer buying put spreads over put options outright.
The Trade: Buy the June $23/$20 bear put for $1.15.
Energy Stocks to Sell: Holly Frontier Corp (HFC)
Holly Frontier Corp rounds out today’s trio of energy stocks to sell. Its pattern mirrors COP with a fresh support break. HFC is now trending below both the 20-day and 50-day moving averages. Unless it can power back above $36.50, the bearish thesis is strong. The first downside target is $32. After that, $28 comes into play.
The lower price tag could make long puts a viable trade here. The implied volatility rank of 15% suggests prices are low enough. You could use a put spread like the previous two trade ideas if you want to cheapen the trade even further.
The Trade: Buy the June $35 put for $3.20.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.