| October 9, 2014

October 9, 2014

Trade Alert:

Buy CVX December 19th 2014 $120.00 Calls at $1.75 or better

Company Background:

Chevron (CVX) is a major integrated oil & gas company.

Short-Term Catalyst:

Oil and gas stocks have been getting pummeled since July.  And for good reason…

The supply of oil is strong.  The US is ramping up unconventional oil production and OPEC refuses to give up market share.

At the same time, demand is soft and investors are fearful the slowing global economy will weaken crude oil demand further in coming months.

It’s basic economics… more supply and less demand causes the price of crude oil to drop.  And crude oil prices are down more than 20% since September 2013.

Needless to say, when oil prices go down, so do oil and gas stocks.

But that’s not the only thing that has hurt crude oil prices and oil and gas companies lately.

The strength of the US Dollar has also been driving oil prices down.  Remember, oil is traded in dollars.  So, when the value of the US Dollar rises in relation to other currencies, it makes oil more expensive.

The combination of the strong US Dollar, healthy supply, and weak demand outlook has been a perfect storm of events that have combined to send CVX down 14% from the recent high of $133.96.

Well, that story has been played.  And it’s time for a contrarian play on CVX.

Yesterday the Fed fired a shot across the bow of US Dollar bulls.  And the US Dollar is now weakening against foreign currencies.  What’s more, oil prices are reaching a level where OPEC and other suppliers will start to cut back production.

Here’s the thing… right now investors are projecting the current market conditions will continue. And that’s hardly ever the case…

And last but not least is the technical setup for CVX.

As you can see in the chart below, CVX has pulled back to support of the long term uptrend for the first time since early in 2014.  And each time it has hit this level, CVX has bounced back and gone on to make new highs.

It’s time to buy call options on CVX to profit from a 4th quarter rebound.

Trade Details:

Underlying Stock Symbol: CVX
Current Bid-Ask Price: $1.58 – $1.62
Option “Buy Up To” Price: $1.75
Break-Even On Stock At Expiration: $121.75
Maximum Risk Per Contract: $175


Exit Strategy:

CVX is trading at $115.00 per share.  Resistance levels will be at $122.00 and again at $130.00.  Remember, we want this stock to move higher.  Support levels will be at $110.00 and $105.00.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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