Regular readers of my ramblings will be aware that I am usually neither a fan nor a follower of conventional wisdom. When an idea is repeated frequently, and seemingly by everybody, trading in that direction is foolish, especially if that narrative has held sway for a while. So when every pundit in print and on TV started saying that energy stocks were the place to be when the stock market fell so spectacularly a couple of weeks ago, I was skeptical. Now that stocks in general have rebounded but the energy sector has got left behind, however, there are some opportunities.
That doesn’t mean that I am ready to jump in feet first, but some stocks are setting up for a risk-controlled trade that can be used to establish long-term positions at advantageous levels. The idea is to find something that can be bought in expectation of at least a partial short-term bounce with the intention of taking a partial profit, thus leaving you long well below the market. Phillips 66 (PSX) looks like the best fit for that amongst the larger oil companies.
(Click to enlarge)
As you can see from the chart above, PSX has lost over fifteen percent since the high about a month ago but has formed a double bottom at the previously significant $89 level. That doesn’t guarantee a bounce, but it makes it likely, especially given that oil is holding above $60.
The idea is to buy PSX at current levels around $91 with a stop just below that level, say at around $88,…