This morning I highlighted the break in trend in the S&P 500 (SPX):
Two weeks ago Crude Oil broke its year-long uptrend, and is now down more than 10% on the year and nearly 14% from its 52-week highs made in Jan:
While the XLE, the energy select etf (which XOM, CVX & SLB make up 40% of weight) has been below its uptrend from its 2016 lows for weeks, and is also down about 14% from its 52-week highs made in Dec, Haliburton (HAL) is just today breaking its uptrend:
I guess there are a couple ways to look at the break in trend, but none of them positive. The trend line should serve as technical support. But while in the case of oil and related stocks, as they have come a long way to get back there, as bearish as the break is, it is a tough place to sell longs or initiate a new short position. As traders like to say, it’s a hard press. But a bounce back and rejection at the trend, the prior support might serve as a great entry on a short, or at least serve as confirmation that longs are using bounces to lighten up.
In the not so distant past Hal was an acquirer of assets (tried to buy Baker Hughes in 2014 for $35 billion. It nearly doubled off its 2016 lows to its recent highs, and is now struggling with the nice round number of $50, longs should consider hedges or long stock alternatives that offer defined risk:
As far as positioning for further downside, like we said, it’s a hard press. But one way to define risk to a small amount is to use the recent weakness and pop in implied vol to sell a put that expires before the company’s scheduled earnings (April 24th) to buy the same strike put in June:
HAL (47.85) Buy the April/June 45 put calendar for 1.00
- Sell 1 April 45 put at .40
- Buy 1 June 45 put for 1.40
Break-even on April expiration: Mark to market gains from where the stock is currently trading to 45 (and slightly below). Small losses on a small bounce higher in the stock between now and April expiration and larger losses (but max risk 1.00) on a big move higher. If the stock is near the 45 strike on April expiration the short put can be rolled to June to create a defined risk vertical put spread with even less premium at risk.