- The Energy Sector SPDR Fund (XLE) offers a diversified way to play Friday’s strong rally in energy stocks.
- Occidental Petroleum (OXY) is blasting through resistance with some heat.
- Halliburton (HAL) has one of the cleanest setups among oil services stocks.
The time to buy energy stocks is now. The sector is on the move today, gushing over 2.5% to break above a critical resistance zone. The gains are more impressive because the S&P 500 is flat on the day. Combining the clean breakout pattern with obvious relative strength makes oil plays my best idea going into next week.
An increasingly hawkish U.S. Federal Reserve and sticky inflation continue to hamper equity values, but energy stocks are not an area that has suffered. Quite the contrary, high oil prices have investors giddy over the upcoming earnings season for energy companies. What’s more, fund flows continue to favor commodity-based stocks over all others. And did I mention just how gorgeous the price charts are? Technicals, fundamentals, and sentiment create quite the bullish brew for these picks.
Here are my favorite energy stocks to trade right now:
|XLE||Energy Select Sector SPDR Fund||$79.55|
|OXY||Occidental Petroleum Corporation||$61.80|
3 Energy Stocks Gushing Higher: Energy Sector SPDR Fund (XLE)
The case for keeping things simple and playing the Energy Sector SPDR Fund (NYSEARCA:XLE), an exchange traded fund (ETF), is compelling. You get diversification and dodge earnings. Plus, XLE options have ample liquidity and tight bid-ask spreads, making it a valuable trading vehicle. The fund is up 43% year-to-date and has seen the 20-day moving average provide support all the way up.
A clean cup-and-handle pattern has formed since peaking last month at $80, allowing overbought pressures to ease and longer-term moving averages to play catch-up. Now, with today’s jump, prices are itching for a breakout. Another encouraging sign is that XLE has been holding firm even as crude oil prices have retreated from $130 to below $100. The unwillingness of buyers to let XLE come down says something about just how aggressive a bid it is beneath the surface.
I’m a fan of any bullish strategy, but let’s go with a bull call to score a higher payout.
The Trade: Buy the May $80/$85 bull call spread for $1.95.
Occidental Petroleum (OXY)
If XLE’s more diversified and lower-octane route doesn’t sufficiently scratch your speculative itch, try Occidental Petroleum (NYSE:OXY). The Houston-based exploration and production company has seen its share price double this year. Ballooning oil prices provided the gas and Warren Buffett lit the fuse. Last month, news hit that Warren Buffett was buying billions of dollars worth of OXY stock. In total, Buffet’s company, Berkshire Hathaway (NYSE:BRK-B), took a nearly 12% stake.
OXY soared on the news, but has since paused to create a sideways consolidation zone. Today’s launch is pushing shares through the ceiling on above-average volume. This is a bullish signal worth heeding. Traders are going cuckoo for out-of-the-money calls. We’re going to capitalize by selling them against a call purchase.
The Trade: Buy the May $62.50/$70 bull call spread for $2.50
3 Energy Stocks Gushing Higher: Halliburton (HAL)
Energy stocks provide countless clean patterns right now, but I’m choosing Halliburton as my final pick. Its ascending triangle pattern is as textbook as they come. Note how consistent the 20-day moving average has been at providing support on the way up. Today’s resistance breach has been six weeks in the making. The volume uptick helps confirm big buyers are piling in.
There is an earnings announcement slated for Apr. 19, but given the tailwind of higher oil prices and Halliburton’s history of small moves following its quarterly reports, I don’t think there is much risk holding into the event.
Still, if you want to increase your odds of success, consider selling puts instead of buying calls or call spreads.
The Trade: Sell the May $34 put for 65 cents.
This is a bet that HAL will stay above $34 for the next month.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.