Bottom Fishing in Energy

Focus: OPTIONS

Marvin Appel Image Marvin Appel President, Signalert Asset Management LLC

Energy prices have been on a wild ride in the past year, pulled between efforts by OPEC to cut production and by the resurgence in US production as unconventional oil wells here come back into production, now economical to operate at lower prices than ever before, notes technical expert Marvin Appel, editor of Signalert's Systems and Forecasts.

The latest move in oil has been down in the past month, bringing the US Oil Fund (USO), an ETF that tracks oil futures contracts, to potential support at the $9 area and to oversold levels as judged by MACD.

chart 1

USO is too volatile for my tastes and, as an ETF that holds futures contracts, has a downward bias that makes it unsuitable for longer term holding. But integrated oil companies’ stocks generally track trends in oil prices, and XOM looks attractive for covered call writing at current levels.

The weekly chart of XOM below shows that XOM has formed a potential base in the $80.50-$83.00 area in the past few months.

chart 2

In addition, MACD has generated a sell signal which is a good sign even though it would be even better if there were a positive divergence or rising double bottom to confirm it.