Testing Broken Resistance
Occidental Petrol - OXY - close: 86.56 change: -0.02 stop: 77.45
Why We Like It:
The OIX oil index and OSX oil services index are both flirting with new 52-week highs. You could argue they're under performing the major averages since the main indices are hitting new highs but energy stocks have been tossed around by crude oil's reaction to dollar volatility. Now it looks like the dollar is beginning to roll over again, which should be bullish for commodities.
I like OXY because the stock has been showing relative strength. Shares broke out to new 52-week highs a few days ago and traders did not hesitate to buy the dip when it tested broken resistance as new support. Oil prices are likely to trend higher as we move toward the summer driving season. At the same time there are still geopolitical tensions simmering between Israel and Iran. There are rumors that Israel may choose to try and attack Iran's nuclear infrastructure by the end of 2010 if the U.S. won't. I'm not suggesting that is a fundamental reason to buy oil stocks but it could raise the "risk" premium in oil.
I still feel like launching new long-term bullish positions now is a risky proposition. The stock market is very overbought with big gains off the February lows. Odds are pretty good the market could see a correction (5% to 10%) that begins in the second half of April. Consider it a post-earnings season depression. There is no guarantee this will occur but corrections are a normal course of both bull and bear markets. While we're talking about earnings OXY is due to report earnings on April 29th.
Considering this scenario with a potential market correction looming in the just around the corner I am suggesting we only open half positions (or smaller positions than you might normally). More conservative traders could use a stop loss near $84 or $80 since $85 should be support. I'm suggesting a stop loss under the 200-dma. Our long-term target is the $99.00 level.
Occidental Petroleum Corporation is an international oil and gas exploration and production company with operations in the United States, Middle East/North Africa and Latin America regions. Oxy is the fourth largest U.S. oil and gas company, based on equity market capitalization. Oxy's wholly owned subsidiary, OxyChem, manufactures and markets chlor-alkali products and vinyls. Occidental is committed to safeguarding the environment, protecting the safety and health of employees and neighboring communities and upholding high standards of social responsibility in all of the company's worldwide operations. (source: company press release or website)
Remember - only half (small) positions
Use the 2011 or 2012 January calls (Entry point - now, at current levels)
BUY 2011 January $90.00 CALL (OXY 11A90.00) current ask $7.00
- or -
BUY 2012 January $100.00 CALL (OXY 12A100.00) current ask $8.00
Chart of OXY: