Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
If anything should be on your watchlist right now, it’s the energy sector.
You all know well that I shy away from looking for reasons that stocks move. I follow the charts and not my ideas.
And it seems that XLE and its top performing companies still have some serious potential upside.
I’ve been warning readers that SPY isn’t looking healthy for a long time. Sure we’ve seen some ups and downs, but it seems a bit range bound on the daily bouncing between solid support at 385.50 and resistance at 417.00.
It’s wobbly at best, and there’s no way I’m going to be bullish until we see prices stabilize above 460.00.
However, energy is on fire.
Gas prices are almost DOUBLE where they were this time last year, and the XLE has seen a near 40% rise as compared to the S&P500 at just 6%.
Though day-traders and those playing short 1-3 day trades, there’s a killing to be made on SPY and stocks like AMZN and ADBE. But be very careful on any long-duration plays.
We could have a reversal, but looking at the monthly trend, we could more likely see another significant drop before the end of the summer.
If you’re looking at longer term trades, then you need these on your watchlist:
Sure, many of these stocks are extended, and you’ll need to do a bit of analysis to make sure your timing is right. However, there’s a steamroller momentum happening that could definitely make you some profits…if you play it right.
Does this mean you can’t lose on these?
If you make the wrong trade at the wrong time, you’re going to get SMASHED.
Never go into any trend without a plan. Even strongly trending tickers will pull back, and any significant downward move in the market could blow up a poorly executed trade.
My top three favorite trade strategies on major trends are long calls, bull call spreads, and bull put spreads.
So let’s consider when is most appropriate.
Long calls are the most expensive and will suffer the most from profit-taking pullbacks. Time your entries when these tickers pull back to key points.
Suggested entries are the 8 and 13-day EMAs.
If you can get in on the 21 or 34, it would be ideal, but the way the energy sector is running it may be some time before that happens. So those would definitely be points to add to or reset your positions.
Bull call debit spreads would be another excellent choice.
Though you’re capping your upside, you can lower your cost of entry on the more expensive stocks like GUSH, ERX, or CVX.
Plus, they’ll suffer less from the volatility of a quick drop.
Unlike in long calls, where I’ll hold for a 100% gain, I’m typically looking for a 60-80% gain on my debit spreads.
Finally, as these stocks drop from profit-taking, it’s a good idea to mix in bull put credit spreads.
These spreads don’t pay well on a strong bullish runner because volatility is too low. However, a pullback will jack up the volatility and give you a much better risk-reward ratio.
Fund your purchased positions with these to help free up your capital.
Keep in mind here that I’m not suggesting any particular trade. Instead, there are many different bullish strategies and tickers to choose from in the energy space.
Plan your trades and follow your rules for entries and exits.
Now get in there and make some cash.
PS – Be sure to check out my weekly show on Rogue investing’s YouTube channel. I’ll take you through the precise analysis you need to build better trades. It’s free of charge, all you need to do is subscribe.
“This is going to involve the first step in a significant pivot involving how the big boys deploy cash to offset a rising sector-specific situation.
As it happens, it involves energy investment, bringing me back once again to my initial area of specialty.”