After reviewing the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) last week, a review of the sector shows longer-term cup and handle setup forming on this ETF.
A weekly formation is also forming.
The Implied Volatility of this ETF relative to its past is not high enough to warrant a credit spread trade.
Several notable stocks included in this ETF with bullish setups are:
- Newfield Exploration(NYSE:NFX);
- Gulfport Energy(NASDAQ:GPOR):
- PDC Energy(NASDAQ:PDCE);
- Phillips 66(NYSE:PSX);
- Stone Energy(NYSE:SGY);
- Southwestern Energy(NYSE:SWN);
- Cimarex Energy(NYSE:XEC)
Some of these are in cup and handle patterns or are in a volatility band squeeze, they can all be traded in the same fashion.
As you can see from the chart below, the low area of $64.00 and the breakout high around $71.27 suggests a target around $78.54 for this ETF. A high volume breakout of the upper high could give this sector a rally into the summer months.
A suggested way to trade this would be to set up a strangle trade on the break out of XOP above the $71.27 high on higher volume. This would give the trader a chance to profit on the up move or down move in case the set up failed.
The $72.00 or $73.00 area would be most likely. One could also look at the MAY weeklys. A more bullish trade would be to buy the XOP or to purchase longer duration calls.
GPOR, shown in chart below, has a nice cup and handle setup along with a band squeeze in progress on the handle, a high volume breakout above the $68.28 level could warrant a position. Bullish trade setups like the XOP can be used.
A target of $84.00 is possible by taking the breakout area high from the low and adding to the breakout. A longer duration option out to July would be one way to use the time and leverage of the premium to trade in this stock.
Drilling into the XOP sector ETF may reward the trader with profitable opportunities especially with the recent turmoil around the world which could affect the price of oil.
As always these are suggestions for more research and study and not trade recommendations, risk is always a factor in these setups so size your trades to your own personal risk tolerance.
Note: The Stock and Option Scout Service has a small position in CRK, a stock in the XOP ETF.
(Chart and option table courtesy of Think or Swim)
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