A crude awakening?

After apparently being left for dead, the oil patch showed some signs of life this week.

On Thursday alone, Market Rebellion’s Unusual Activity Service identified nine bullish trades in the sector, including a large play in the SPDR Energy Fund ($XLE). More than 45% of that ETF is composed of Exxon Mobil ($XOM) and Chevron ($CVX), with about equal weightings in each.

Some say the run-up in the solar space indicates that energy demand is still relatively healthy despite the pandemic. If that is true, the thinking goes, it could mean that the need for fossil fuels has been underestimated because alternative energy is hardly ubiquitous.

In the nearer term, speculation behind the renewed interest in oil E&P stocks has focused on such diverse factors as stimulus hopes, infrastructure speculation, and a potential softening by Democrats in opposition to fracking (per Kamala Harris’ comments in the vice presidential debate). Others, however, say the bullish trades are simply bottom-fishing by investors trying to play catch-up to the rest of the market.

Regardless of the reasons, here are some of the larger trades that we listed Oct. 8 on our Activity Log:

–SPDR Energy Fund ($XLE): 20,000 January 45 calls bought at the same time for 0.09-0.10 above open interest of 17,367 contracts. Stock 30.52-30.63.<BR>
–Exxon-Mobil ($XOM): 11,300 06November 35.50 calls bought for 1.22 to 1.30, including one print of 9,872 for 1.25, above open interest of 227 contracts. Stock 34.64. EPS 10/30 before open.<BR>
–Marathon Oil ($MRO): 25,000 November 5 calls bought for 0.17 above open interest of 1,668 contracts, 25,000 November 6 calls sold for 0.07 above open interest of 3,148 contracts. Stock 4.17. EPS 11/04 after close.<BR>
–Apache ($APA): 10,000 January 12.50 calls bought for 0.95 above open interest of 1,465 contracts, 9,900 January 15 calls sold for 0.50 below open interest of 12,163 contracts. Vertical call spread bought or rolling-down trade on Log 09/14. Stock 10.11. EPS *estimated* 11/04.<BR>
–Ovinitiv ($OVV): 12,000 November 10 calls bought for 1.18 above open interest of 378 contracts, 12,000 November 11 calls sold for 0.72 above open interest of 247 contracts. Stock 9.77. EPS *estimated* 10/29 after close.

It should be noted that the expiries in trades listed above will cover confirmed or estimated dates of the companies’ earnings reports.

A technical look at the sector may provide some reason for optimism in the shorter term, according to the chart above from our technical analyst Bryan McCormick. However, as his chart below shows, the $XLE clearly remains in a longer-term downtrend.

(Disclosure: I am long $XOM as of Oct. 9.)