Why buy into the oil gap?
BP ( BP) enjoyed a strong open, but has begun to fade into lunchtime trading. Shares have gotten back to flat for the year, and continue to trade in a wide range of $36 to $45, established over the past several years. We briefly saw a flash in the late spring and early summer 2018, when the stock tried to breakout higher, but the $45 to $48 area withered and BP has done little -- much like other foreign, major-integrated oil names.
If we looked at Royal Dutch Shell ( RDS.A) ( RDS.B) , BP, Sasol ( SSL) , or TOTAL ( TOT) , we'd find similar patterns. It's U.S. names like Exxon Mobil ( XOM) and Chevron ( CVX) that sit with more potential on the charts and in business. If the U.S. does release oil from the Strategic Petroleum Reserve, I wouldn't look for President Donald Trump to do any favor to foreign-based oil names. It hasn't been the trend for three years, so why would it change now? It wouldn't. Only Exxon and Chevron would walk as benefactors.
Monday started with a squeeze across all the energy sectors and oil, but will demand change and the price jump stick? Unless one believes that Saudi production will fall significantly and the U.S. won't dip into the reserve, then the price changes should stick. My view is that oil itself may be the better play than a name like BP. Exxon and Chevron would be a better play than BP, too, if we're staying strictly in the space.
Although I don't love the structure of the United States Oil Fund ( USO) , it is an easy one for most traders to use, rather than futures. The setup on the weekly chart of USO is fantastic if it holds above $12. Ideally, we'd see a pullback to the $12.20 to $12.25, then a reversal higher once again. The bounce off the $12.25 area with a stock around $11.85 would be the play with an upside target of $13.50.
We're only back to summer highs, so there's no overbought signals from a weekly view. The push above .80 is tricky on the StochRSI, as it has involved quick reversals or strong continuations. That speaks to expected volatility and a big move yet to come. It wouldn't shock me to see USO move $1.50 or more in either direction in the next two months. Unfortunately, the option market makers have the exact same view. Expect 10% or higher in oil, which makes naked shorts in either direction a big risk.
There's no appeal for me in BP. The stock is facing resistance just above $40, with no support until the $38 level. I do like the bullish crossover in the Full Stochastics, but until we're above $40.50, I'd prefer to use Chevron as a first-choice long and Exxon-Mobil as a second. I'm not sure BP Amoco even makes my Top 3 i n the integrated oil space.
Unless you're accustomed to volatility and a trading desk jocking (i.e. barely leave your desk even to visit the bathroom), I'd continue to let the oil sector play out another day or two. The headline risk and Tweet risk is going to be unusually high, so using stops and market orders is risky. If involved in the space, consider smaller sized positions to avoid shakeouts.
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