A strategist says oil prices could be ready for a big rally.
Although the energy sector has cooled in recent months, the US West Texas Intermediate crude price chart has given a rare signal, Miller Tabak’s Matt Maley told CNBC’s “Trading Nation” on Wednesday.
“Crude oil saw a golden cross on its weekly charts,” said the company’s chief market strategist.
A golden cross occurs when the short-term moving average of an asset crosses the longer-term moving average and is widely seen as a sign of further bullishness.
In the case of oil, “this has only happened three times since the start of this century and after each of those three times there has been a very strong recovery in crude oil of 20-50%,” said Maley.
“If oil continues to rally here energy stocks should also continue to rebound and I think this is a group where I think people can do very well in the last third of the year.”
Boris Schlossberg of BK Asset Management said in the same interview that investors should consider adding downside protection to their portfolios as the market is seasonally difficult during the September to December trading period.
“I would call it the Terminator Marketplace. It always comes back. He refuses to die, ”Schlossberg said. “But … I think there is certainly a potential danger here.”
Schlossberg, managing director of currency strategy at his company, said that as bond yields continue to rise and inflationary pressures persist, the correction potential in higher valued stocks also increases.
“I think the only best bet here for downside protection is to just buy the 380-360 QQQ sell spread as that will give you downside protection on the Nasdaq, which is the most volatile of indices,” did he declare.
This represents a bet that Invesco’s QQQ ETF, which tracks the Nasdaq, will remain below $ 380 per share until the end of November of trading. In order for the trade to generate its maximum profit, QQQ would have to fall below $ 360 per share. QQQ was trading around $ 373 on Thursday afternoon.
“If that works, it’ll give you some pretty decent protection, at least for the 5% down,” Schlossberg said.
“The higher the yield on these bonds, the more likely the Nasdaq is to be correct, because the Nasdaq is essentially operating on the notion of free money,” he said. “When the money gets a little bit more expensive, the appraisal contracts will start. So, for me, this is probably the biggest catalyst for moving into the fall season. “