Cross Your Oils (XOM) and Open your Precious Metals
As loud-mouth-know-it-all and good friend Matt McAbby wrote last Thursday, we’re going to be depending more upon the biggest market names and more popular smaller issues to help guide us on the road to riches that lies ahead. It’s not conventional market analysis, to be sure. But it’s also not a conventional market anymore, friends, as we’ve stated many times.
That said, we’re going to attempt something a little offbeat today and in upcoming issues, and, where space permits, present you with a brief look at some stocks that we believe are emblematic of the current bull market, and upon which we’ll be relying to determine the market’s direction.
Kiss me! Slap me! Kiss me!
Goldman Sachs (NYSE:GS) is a company everyone loves to hate. It’s also the foremost financial services juggernaut in the world. And as far as we’re concerned, there can be no rise in the stock market without Goldman Sachs either leading or following. That is, any turn lower for GS stock will likely mean we’ve reached the crux.
Here’s Goldman’s chart –
Love ‘em or hate ‘em, Goldman has been on the rise for a year and a half (see blue line in insert). That rise has been in abeyance for the last six months, though, and an ascending triangle has formed during that time with strong selling triggered every time the stock approaches $170 (red line).
Which way will it go?
What’s for certain is that ascending triangles are continuation patterns, and powerful price moves regularly occur when the stock ultimately breaks above overhead resistance.
There will be a break higher for GS stock, and with it the whole market will also be carried higher.
Goldman is representative of both the financial sector and the broad market.
Lots of Cash on the Horizon
Wish we had more space to comment on all the good things happening with our open trades, but it’ll have to wait for next week. With November options expiry just a few days away, we stand to take home a good-sized loot bag from a number of them.
As to the current market, we’re just happy to see some movement again. It’s hard to make cash during a sideways drift, but it appears we’re now gaining some traction.
The situation is like this –
We have a trending market at the moment, truncated, to be sure – with some issues jumping and others losing ground – but either way we’re grateful for the movement. That’s what makes the money.
Oil & Mirrors
Let’s look now at what that movement has produced for us in real cash dollars and cents.
We’ll start with a look at oil –
Nice bit of symmetry, no?
As you can see, we have two head and shoulders formations on oil’s chart, the first a bottom (reverse H&S, in green), and the second a top (in red).
The first completed its upcount exactly at the beginning of September, then capped out and gave way to the H&S top that’s now traumatizing oil longs.
And the question is – has oil bottomed yet?
According to the chart, we offer a guarded ‘yes’.
A) On the one hand, the downside count, measured by the distance from the top to the neckline and then extended the same distance lower (red dots), is now complete.
B) On the other, we have the action of the oil and gas companies themselves – and the big names in particular – that often lead the commodity by a good stretch, as they’re moved by investors with a slightly more forward-leaning orientation than traders in the oil pits.
And what are the big names in O&G saying? Let’s have a look at the biggest of them, Exxon Mobil (NYSE:XOM), for the last six months –
XOM shares climbed over 10% after bottoming in early October and have now retaken all their major moving averages (green arrow), which, incidentally, are also all currently trending higher. They’re not unfurled completely – when that happens we expect a lot more money to rush toward the stock. But things still look strong in the meantime.
Also, both RSI and MACD are above their respective waterlines, the latter having resurfaced only eight or nine sessions ago. And the divergence that exists between these two indicators and the stock’s price action is also indicative of the strength behind the move.
This is the kind of action we love to see – particularly because it puts our September 2nd trade well into profit territory (see – Arcane Moving Averages Offer Trade Signals).
We initiated the trade because, as we said at the time –
XOM stock is down over 10% in just four weeks, cutting below all its moving averages in an overdone selloff following release of its Q2 earnings. The stock bottomed… with a sub-20 RSI read that we say is also a buy signal. We note RSI and MACD are now both trending higher. We think there’s support at the long term moving average and that a 2.9% yield is also supportive of price.
And hoowee! – did that work out nice.
The stock looks to have paused here, and because RSI just a few sessions back also scraped close to its overbought 80 level, we’re not taking chances. There could be further gains, particularly if oil itself has bottomed, as we believe it has. But we’re going to close out and go home with a smile – and a decent cash hoard, too.
We recommended any readers that followed along with our trade consider buying the XOM April 87.50 CALLs for $4.00 and selling the April 95 CALLs for $1.26, for a total debit of $2.74 per pair. And today, at the time of writing, that same pair is trading as follows –
The April 88s are worth $6.50 and the 95s are fetching $1.92
That’s a spread of $4.58.
Readers who followed along stand to make $1.84 ($4.58 – 2.74) if they close out today.
And we say you consider doing it.
That’s 67% in ten weeks, bro.
And it sure beats a cold bowl of soup.
Wall Street Elite recommends readers consider closing their XOM spreads according to the instructions given above.
With kind regards,
Hugh L. O’Haynew, Senior Analyst, Oakshire Financial