Carter says that now that the rebound is here, the only thing to look at is the trendline.
Crude oil is at the middle of the formation that crude has been living in for the past two years before the Ukraine war.
Guy says OIH can test the previous highs.
Dan previews a bullish options trade for the OIH.
Crude oil is at the middle of the formation that crude has been living in for the past two years before the Ukraine war.
Guy says OIH can test the previous highs.
Dan previews a bullish options trade for the OIH.
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NewsTranscript
00:00 Fundamental case for crude oil has not changed.
00:04 What changed is the price.
00:06 The fundamentals around it haven't changed.
00:08 I think a lot of the self we've seen is on this fear of a global slowdown,
00:12 which I totally get.
00:14 The problem with that argument is there's been zero demand destruction.
00:19 We're still at pre-2019 levels in demand,
00:22 and in terms of supply, we're not anywhere close to where we should be.
00:26 So the supply-demand fundamental setup,
00:28 we've heard from a number of people.
00:30 Halima Croft talked about it.
00:31 Paul Sankey talked about it.
00:33 So I will tell you, I think there's a leg higher here in crude oil than commodity, Dan.
00:37 All right.
00:38 Well, Carter, I just mentioned, you know, worth charting.
00:40 I mean, you put it out there yesterday.
00:42 It was -- you've been negative.
00:45 You thought we'd kind of get a retest back to those November highs, right?
00:49 And we did, almost to the penny, as you would say here.
00:52 So walk us through your thought process here and, you know,
00:56 how you're thinking about playing it and where do you think it could go,
00:59 crude oil, in the near term.
01:00 Sure.
01:01 So actually, this was a follow-up from last Wednesday.
01:03 We put out a thing talking about oil and XLE and saying, you know what?
01:07 We're down to the rebound juncture.
01:10 Let's get going on the long side.
01:13 Now that the rebound is here, the only thing to look at, I think, is the trend line.
01:17 And so we've just yesterday moved above the trend line, in effect,
01:22 short-term trend line, since the 125 high.
01:26 And so if you take that, write what you're looking at,
01:29 and put it on the longer-term chart, you'll see the next iteration.
01:32 It's not only that -- and that was the point of the week ago call --
01:36 not only were we down at that bounce juncture, now that we have bounce,
01:40 we've moved above the downtrend line.
01:42 So two very sort of important things.
01:45 And you can keep going here, go further back.
01:48 The point of that level and the point of the week ago judgment was that this is
01:55 not only down to the highs of the autumn of 2021,
02:01 but if you look at the next iteration, it was at the middle of the formation
02:06 that crude has been basically living in its entire two-year history until the Ukraine war.
02:13 And we had that blow off top, and we're simply back to midpoint.
02:18 So three things all coalescing, three key levels,
02:21 and hence the judgment to play for bounce.
02:23 And commodities in general are a bit better.
02:26 I agree with that.
02:28 I'm with you.
02:29 And, Dan, the way I would play it -- and you've heard me say this,
02:31 but the OIH has been extraordinarily volatile, went from 175 up to 320,
02:38 back to 245, which was support, back up to 310, cratered on the back of the commodity.
02:44 Now we're catching the second wind here.
02:47 I think this, if we look at a chart in OIH, I mean, to me, this is how you play it.
02:51 The underlying components basically are three stocks, Baker Hughes to a certain extent,
02:56 but the two big ones, Schlumberger and Halliburton, both the fundamentals of those
03:01 companies are better than they've been maybe in the history of the company.
03:04 Balance sheets are better.
03:06 They're operated better, and they're at extraordinarily reasonable valuations.
03:10 And you can look at this chart.
03:11 That uptrend line is still intact.
03:13 We broke through that prior support level to the upside with that horizontal line.
03:19 And to me, I think with even just a benign tape in the broader market with commodity going higher,
03:25 I think the OIH can test those previous highs, not the all-time highs,
03:29 but the previous highs we've seen over the last year or so, Dan.
03:32 Yeah, and I think that volatility is really kind of the opportunity here,
03:35 especially if you're right on fundamentals and if Carter is correct on the technical setup with Crude.
03:40 I think that's a great way to play it.
03:41 And, you know, again, I don't have a position in this name just yet in the OIH,
03:45 but I was looking at the options, and here's a trade that I kind of liked here.
03:49 So when the OIH ETF that tracks those services' names was $248 today,
03:54 if you look out to October expiration, you could buy the October 260-300 call spread.
03:58 That would cost you about $10.
04:00 You'd be buying one of the October 260 calls at about $14 and then selling one of the October 300 calls at about $4.
04:08 Again, the max premium at risk is $10.
04:11 You have profits of up to $30 between $270 and $300 with a max gain of $30 above $300.
04:18 Losses of up to $10 between $260 and $270 with a max loss of $10 below $260 there.
04:26 So, again, I like the risk/reward of this trade.
04:28 Again, it's been very volatile.
04:30 You're risking about 4% of the ETF price.
04:32 You have a break-even up about 8%, which seems like a lot, but, again, this thing's been moving around.
04:38 And then you have a max potential gain of about 12% of the ETF if it's up about 20% in a little less than two months.
04:45 So, again, we always like to think about trade management here.
04:49 I like to use mental stops.
04:51 If this ETF were to turn lower and I paid $10 for this 40-wide spread,
04:56 I'd look to cut my losses if that was worth only about $5, about half the premium there.
05:02 And then on the upside, if I had a double, if that 30-wide or 40-wide, excuse me, call spread were worth $20,
05:11 I might look to take half off and let the rest ride here.
05:14 So, again, I like the way you're thinking about playing Carter's take on crude.
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