Monday, December 1, 2014

Monday's Finalists: FCX, NE, COP, XOM, EWW, UPS

The 17 survivors from Friday's markets -- those that made it past the early rounds of analysis -- are overwhelmingly fossil fuel companies and their sovereigns. The sharp decline in crude oil prices is clearly taking its toll upon all involved in that sector, one so crucial to our economy and indeed, to our survival.

(See "Monday's Prospects" for a description of the early analysis.)

I discarded those whose bid/ask spreads or distribution of open interest precluded practical trading with leverage and hedging, both necessities in a market as volatile as fossil fuels have been of late.

The chart below, of the crude oil exchange-traded fund USO, tells the story: A sharp run-up it the price of crude during the latter months of the bubble, followed by a devastating fall and then a sideways trend ranging roughly from $41.92 down to $29.10 until mid-October, when the price again began to tank. Last week saw a nearly 15% decline in USO's price, a magnitude worthy of the Great Recession fall from the summer of 2008 into 2009.

Click on chart to enlarge.
USO 10 years weekly bars
Five symbols remained in the pile: Four oil companies, including the biggest of them all, Exxon Mobil,  and an oil-producing sovereign, Mexico. Most of the discarded symbols are also participants in the Petro Games, although by choice, not as the result of a reaping.

These are all highly liquid trades with Weeklys in their options inventory. It strikes that they will be perfect opportunities for plays based on short options under my volatility rules, similar to those that I profitably traded during earnings season. (A discussion of the strategy may be found in my essay, "Rules for very short-term trades".)

So far, they don't qualify for that strategy. Their implied volatilities are streaking up like rockets. My best course will be to wait for volatility to turn, along with the price, in the inevitable response to panic and overreach before placing my trades.

i'm adding the five symbols to my Watchlist and shall monitor them closely this week seeking an opportunity. The five are FCX, NE, COP, XOM and EWW.

UPS, a bull signal from my list of innovative companies, has continued to trade higher today. I'm going to give it a day to settle down post-holiday and shall consider it later in the week a trade under my longer-term rules.

-- Tim Bovee, Portland, Oregon, Dec. 1, 2014


My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My very short term volatility trading rules can be read here

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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