Oil prices are under pressure right now. Our energy signal at Executive Payouts Unlimited turned negative last week. But our focus now is on how to trade oil if crude continues to slump.
Crude prices started to slump sharply at the onset of October. However, the Hamas attack on Israel fueled short-covering and a 12% jump in oil prices in less than two weeks. Despite concerns about the Middle East and questions about long-term stability in the U.S. refinery industry, oil is selling off sharply.
The narrative is shifting toward concerns around the U.S. economy. WTI crude is back under $80 per barrel after pushing the $90 level just a month ago. So, how should we approach this situation? We look for oversold conditions.
Here’s how.
Buy on the Sound of Cannons
If you’re looking to understand the current condition of U.S. oil equities, there are three technicals you should follow around one specific fund.
You don’t need to follow Exxon Mobil Corp. (NYSE: XOM) or Occidental Petroleum Corp. (NYSE: OXY) or Apache Corp. (Nasdaq: APA).
That’s where the MicroSectors U.S. Big Oil Index 3X Leveraged ETNs (NYSEArca: NRGU) comes in. This is basically the matrix for the oil markets. It’s not an ETF…
NRGU aims to provide investors with returns that match triple-leveraged exposure to the underlying performance of the Solactive MicroSectors U.S. Big Oil Index.
The what?
OK, the Solactive MicroSectors U.S. Big Oil Index is a tool that measures the total performance of the largest 10 oil and gas companies. They are:
- Exxon Mobil Corp. (XOM).
- Chevron Corp. (CVX).
- ConocoPhillips (COP).
- Schlumberger Limited (SLB).
- Pioneer Natural Resources Co. (PXD).
- EOG Resources Inc. (EOG).
- Phillips 66 (PSX).
- Occidental Petroleum Corp. (OXY).
- Valero Energy Corp. (VLO).
- Marathon Petroleum Corp. (MPC).
This gives me an ample view of the entire Energy sector. And when the Solactive MicroSectors U.S. Big Oil Index goes up by 1%, the NRGU goes up by 3%.
And when the Index falls by 1%, the NRGU goes down by 3%.
Who’s trading this?
Well, it’s not something followed by most retail traders. It’s largely used as a hedging tool or a short-term trading tool for more sophisticated players.
It’s highly technical, which means that we want to look for clues on when a sell-off may have concluded.
Oversold in Oil? Right on Time
Here’s the chart of the NRGU over the last year.
Watch the Relative Strength Index (RSI) and the Money Flow Index (MFI). In the case of both the RSI and the MFI, the two indices are down at oversold levels that we haven’t seen since July 2022, September 2022, March 2023 and the start of October 2023.
It suggests there’s an opportunity to trade around some of our favorite names using put spreads on companies we’d LOVE to own at lower levels.
Checking in On Occidental
Over at Tactical Wealth Investor, we just unveiled our latest value and income play in the Business Development Corporation space. We’re focused on a fund trading at a 9% discount to its Net Asset Value and an 11.4% yield.
One of our long-held positions is Occidental Petroleum (OXY), a Houston-based oil-and-gas producer that has the largest land presence in the Permian Basin. The company has been a major source of investment for Warren Buffett over the last 18 months. In fact, Buffett has invested more than $2 billion into it.
OXY reported earnings on Tuesday, drawing a lot of attention to the future of the Permian and U.S. oil output.
Q3 earnings for OXY slumped 52% for the quarter, while revenue was down 24%, largely on the back of slowing oil demand and a post- Ukraine-war oil hangover. That said, the $1.18 in earnings beat expectations of $0.88. In addition, the $7.16 billion in revenue also beat expectations.
OXY is still pumping out a lot of oil, with its production now at 1.22 million barrels. The company projects that this year’s output will be 1.215 million barrels of oil equivalent each day.
The company still has robust levels of cash flow, strong demand, and continues to boost its production. Yes, weaker oil prices are weighing on OXY and the rest of the Energy sector. But keep in mind that OXY’s breakeven price for crude is $40 per barrel, according to company documents.
Buffett has regulatory permission to buy up to 50% of Occidental. And it remains our No. 1 trade over at Executive Payouts Unlimited. In fact, we’re about to take a nice gain on an OXY trade… and open a brand new one very soon.
Be sure to sign up and take advantage of this incredible stock.
Chat soon,
Garrett Baldwin
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. How to Avoid Significant Midweek Volatility
There’s a trading genius hitting the markets right now…
One that lets you know which stocks are most likely to pop over the weekend, and it’s gaining some serious momentum…
Yet only a handful of trading pros know how to leverage it.
In the last three months alone, here’s some top weekend gains we’ve seen in Lance Ippolito’s record book:
- 30% on CHWY.
- 34% on MOD.
- 66% on RTX.
That’s why I’m writing to you now…
At 4 p.m. ET on Thursday, Nov. 9, Lance is hosting a free live event where he’ll show a few traders:
- How he’s been able to take advantage of this “trading sensation” to lock a 72% win rate across 316 weekend alerts in the last two years.
- How he locked in top gains of 34%, 66% and 175% in the last three months without having to worry about mid-week volatility
- How you can unlock over 150 unique weekend trade opportunities over the coming year… as soon as this friday…
Lance doesn’t plan on having a large crowd…
But I’m pretty sure these spots will fill up fast!
The profits and performance shown are not typical, we make no future earnings claims, and you may lose money. From 9/17/21 through 11/3/23, the average win rate is 72.4%. The average weighted rate of return on options trades was 14% over a 3 day average hold time.
