Energy Makes a Case for Going Long

Short but sweet post. If you're wondering what is going to lead the market, look at what led during the decline. Here we can see the evidence of this:

You'd think tech (consumer discretionary is 40 percent in Amazon and Tesla) would bounce and you'd be right, but there's energy in the mix. This looks like our next bull market leader.

Earlier this week I said the second trade of this year would be short oil, but a week like this past one makes me wonder if it won't be pushed out until September. On the bright side for bears, energy's strength is bearish for tech. This definitely looks like a bear market rally. Stll, if crude has higher to go, natural gas producers such as SWN and oil services such as TDW, NCSM are a place to be.

A look at crude oil shows the Russia spike evaportated and is now almost entirely back in terms of time. Crude only traded higher on a few days and the Russia spike took it higher for only three days. If crude can touch $117 per barrel, I will view the Russia spike as an anomaly and conclude that a new breakout is underway, with a new high above the Russia spike coming. The #GreenSwan will be here. Green and ESG policies, plus lockdowns can keep pushing crude higher even as the monetary fundamentals shift. This will send the Federal Reserve to the wall on rate hikes. There will be a terminal move in crude at some point though, because the Fed's policy plus slowing money supply growth should take year-on-year growth lower.

Takeaway: the Federal Reserve cannot and will not ease policy with crude oil in a breakout. If crude rallies now, it will be a good long trade for a few months maximum. The biggest gains will probably be in stocks that have high production costs, such as offshore oil. Crude will be a great short at some point though, and I won't get too aggressive until I see how markets react to QT. If crude declines right away, it is a good short here with a good buy-the-dip opportunity coming later this year...assuming the wheels don't fall off the global economy.

Victory Taco

$10 Natural Gas

Breaking out of this zone doesn't guarantee a trip to double-digits, but that is a very possible destination. Natural gas will probably go to a new all-time high.

Taco Tuesday

Near $8 today.

Taco Friday

Update: I took profits today because I owned September $7 calls and this ran up much faster than I expected. I held less than two weeks and made more than 100 percent. For myself, I think it was a "failed" trade because I should have gone farther out on the option chain or bought much shorter-term calls, but then a nearly 20-percent one-day move is hard to predict. I do think a breakout is underway though and will reenter. Longs are in good shape here and I wouldn't be worried unless the breakout fails at the $6 area. If the news flow blasts this up to $10, then this could really run. There is very little resistance up there. I think it will eventually take out the old all-time high.

That's the candle you want to see on a breakout.

Update: Another look via volume profile.

A Little More...

Almost There

Would you like to ride in my beautiful balloon

Would you like to ride in my beautiful balloon

We could float among the stars together, you and I

For we can fly we can fly

Up, up and away

My beautiful, my beautiful balloon

The world's a nicer place in my beautiful balloon

It wears a nicer face in my beautiful balloon

We can sing a song and sail along the silver sky

For we can fly we can fly

Up, up and away

My beautiful, my beautiful balloon

Suspended under a twilight canopy

We'll search the clouds for a star to guide us

If by some chance you find yourself loving me

We'll find a cloud to hide us

We'll keep the moon beside us

Love is waiting there in my beautiful balloon

Way up in the air in my beautiful balloon

If you'll hold my hand we'll chase your dream across the sky

For we can fly we can fly

Up, up and away

My beautiful, my beautiful balloon

Balloon

Up, up, and away!

Taco Thursday

Picked up long-term calls on Taco today.

I think it will follow in the footsteps of my two recent energy trades:

It's a Gas

Taco isn't jumping yet, but Antero is close to a breakout. Although I worry that the actual taper (if it ever begins) could sink oil prices, natural gas has a history of going its own way. If I'm wrong and oil takes off, natural gas stocks (along with oil services) are still dirt cheap. They haven't priced in the gains to this point,

Been Buying Today

I went long today. Burned through all my profits after selling most of my remaining shorts and trying to buy the bottom in the Russell 2000. I bought energy today. Taco March calls and Alabama July calls.

Taco Time

I bought SWN today, long-date calls. It is a starter position. As you can see, it dipped below the cyan trendline four times, the prior three were all bottoms. If it goes to the dotted line (at $3.19) in a major selloff, I won't be shocked. I will acquire OTM LEAPs if that happens.

Closed Longs

Except for SWN, which are very long-dated calls. The bond market will decide if this sell-off stabilizes or picks up steam. Look at this chart of a municipal bond ETF fund.

Gone Long

Long IWM, NFLX, SWN, short TLT. SPY bounced near 200-day, that was my buy signal.

Talk About a Round Trip

Natty Pops

Need to crack $4.80 to violate the topping pattern up top. So far so good though, it has been a great trade already. I have no direct exposure, but do have calls on SWN (a lot) and CTRA.

Out of XLE Puts, Bought More Taco

CL is really cooking after Powell's hearing. If the crude gain holds, natural gas is ready for a breakout too.

Energy Breakout

I'm still on the fence macrowise, but the chart says breakout. So, what do I do? Go back to the Taco. I feel more confident with natural gas because it has a history of bear market outperformance. I picked up 40 delta March calls at the $5 strike. Other natural gas charts to check out and consider are AR, RRC, OVV and CTRA, all in the U.S. I did buy a few calls on CTRA as well, but not a meaningful position.

Taco Thursday

If you are bullish right now, this would be a good spot to get long energy. I suspect this could dip to the $3.20 area in a panic though. I am looking to get long at some point, not playing short-side.

Taco Gets Bigger

SWN has a double-digit target off its base. It is under pressure with energy stocks coming down, but long-term still looks good. They bought the third-largest private natural gas producer today.

Energy Getting Hyper

Two weeks ago I posted, Aggressively Shorting Energy. That didn't work out as a trade, but WTI crude oil is still below the fibonacci level as long as it doesn't clear $77.25. XLE clared an old support line today, but there's still a possibility of a symmetrical head and shuodlers top.

Long-terrim readers will know I have been a long-time bull on SWN. The stock climbed 21 percent today and exploded higher along with the rest of the natural gas sector.

One of two things is going to happen. Either energy will correct along with the rest of the stock market, or energy is about to signal inflation is accelerating quickly, in which case the Nasdaq is going to ggo skydiving without a parachute. I still prefer natural gas as an energy play for myself. An alternative, derivative play is fertilizer. I opened a position in this stock today.