I always look forward to these get-togethers. It’s an opportunity to catch up with JC and the analyst team in person.
But more importantly, it’s a fun and laid back forum for sharing ideas with some of our smartest colleagues and industry professionals. I always come away with something good. Something I wasn’t watching. Something from someone else’s radar that is now on mine.
I’m going to give a special talk on how I use VWAP to enter and exit trades. I’m going to do another one on warrants and add leverage to high-conviction ideas.
But there’s another topic that I wasn’t prepared to talk about, but now think we’re going to have to add it to the agenda.
Oil & gas.
Everyone hates it right now. Meanwhile, the smart money is as long as they’ve been in years and prices are digging in. The bears can’t bury crude oil and friends. They’ve had every chance to do it.
Here’s a look at crude futures along with heating oil and gasoline. The charts are in order based on their recent relative strength.
As one would expect, the price of oil and its derivatives tend to move together over time. We never want to make the bet that these trends move in different directions for too long.
In other words, if gasoline and heating oil complete tops, it’s logical to anticipate crude to follow.
But the opposite is happening right now.
Gas is refusing to break down from a multi-year distribution pattern just as heating oil reclaims a key level. They are both above support and rebounding higher. These are looking more like failed tops than actual ones with each passing day.
At the same time, crude is sitting right at a shelf of former support that it recently broke through. However, since it happened a few weeks ago, there’s been very little downside follow through.
I’m making the bet that crude scoops and scores here.
I think it should look a lot more like its derivative plays soon, back in its old range. And I think we can get a fast move back toward the upper bounds from there. I’m talking about a big rally that sends crude back to the 80s or 90s.
We’re seeing similar patterns play out in energy stocks lately. And they were a great tell recently, sporting a bullish divergence at the lows and leading energy futures higher. I think energy stocks will be right again this time.
We’re already positioning for it. We put on a few oil & gas longs last week. We came close to selling the double in our Chevron calls today. Another green candle tomorrow and we’ll be taking profits.
