Over the past few weeks, we have seen crude oil rise sharply and, just Wednesday, it reached levels not seen in months. The commodity is up sharply, having rallied more than 10% in a week.  Of course, we’ve seen short-lived rallies before, so is this just another one that will fade or is this going to stick? 

That’s a great question and clearly will tell us the chances of making profitable trades.  We should note crude futures have jumped higher, so that would certainly give substance to a continued rally.  But futures always rally with the spot price, so that alone could be a false signal.  But I still believe we’re heading higher, so is there something else afoot?

It’s important to watch the companies that move with crude, some of the biggest names in the world.  What I found interesting is these names started to move higher before the commodity. In fact, I mentioned last week these stocks were moving as if crude were heading to $60 a barrel, and that was when oil was in the very low 50’s. 

Stocks like XOM, COP, APC, APA, CVX and a few others like SLB, RIG moved out to levels not seen in months.  EOG, PXD, and other shale-related plays moved up on strong turnover. Not only was the price action solid, but sentiment was turning and the technical indicators flashed some buy signals we had not seen since summer of 2014. 

Now, I for one was not convinced until earlier this week this could be something substantial.  I will always be late, and that is by design, not willing to step in to try and pick a bottom.  That is a loser’s game, as there will always be time to get on board a longer-lasting trend, if that is the case.

In my mind we had a bullish argument, so putting my money where my mouth was, I had to make some plays, and that’s exactly what occurred (and is occurring).  We bought some calls on EOG, COP, and APC this week, starting with the best setups and then added some SLB May 90 calls to the mix. 

These are still working for us (and are all in the green) but I certainly wouldn’t say these stocks and crude were in a bull market.  But waiting for a turn, and potentially a new trend, has served us well, and booking profitable trades is not far off.

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*** Note: Bob Lang is long APC, COP, EOG, XOM, SLB