From Keith Harwood, OptionHotline.com
If the lows are in (big if), what’s the sector that can lead us to prior highs? Where do we go from here?
Well, there are a couple of approaches, and I think both have some logic to them. Both might work, and neither might work, but I think these approaches make the most sense in these times.
First, I look at the sectors that are leading us out of lows. And for the last two weeks, one of those sectors has been OIH, the oil services sector:
As you can see, OIH has been driving higher for weeks now and rightfully so with oil prices themselves driving higher for months. While oil has been on the stable side for the last few weeks, oil services has clearly been trending higher as a laggard. Let’s look at the chart of oil to see what’s going on there:
With oil driving higher for months and oil services catching up in the past few weeks, I can also look to ICLN as a clean energy alternative that often lags the initial move in oil companies to get me some leverage, and that’s likely how I’d look to play the oil services move:
ICLN is just testing the 20-Day Moving Average now and has significant upside if it’s to match the move in other oil names. Energy (and inflation) has been a theme of markets for years now, and clean energy seems to need a boost as a result.
Alternatively, I can look at the laggards of the last 2 weeks while the market is recovering. And there’s one that stands out to me. FXI, which is a Chinese Large-Cap ETF, has been doing particularly poorly. Perhaps it’s time to play catch up, so let’s look at the chart:
Options are crucial here – buying into a sector that’s been bullish like OIH, a laggard like ICLN, or a bearish sector like FXI all require defined risk. And, fortunately, options give defined risk as well as leverage. That’s what we specialize in at Option Hotline and can help with for your portfolio.
If you’d like to learn more, please go to https://optionhotline.com to review how I traditionally apply technical signals and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.
Keith Harwood
PS-There are a lot of charts in this article. They are extremely helpful as you trade but knowing what is in them is important. To see how I build a chart, click here.
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