Did you see that move in crude oil on Monday?
But, more importantly, did you benefit from that move…
And know where to go next?
Here’s what we know about the move, who to look at as a result, and the importance of ‘going wide’…
STEP ONE: The Recent Crude Oil Move
With the recent crude oil move, I want to start by talking about the price movement ranges that get me looking at what I call an exhaustive daily price movement range.
How do I find the exhaustive daily price movement range?
When considering the exhaustive daily range, I try to assess the typical price limit range. Now I’m not talking about what’s known commonly as ATR (the average true range). I use a different calculation, and that’s what’s known as a PMR (the daily price movement range).
Now crude oil has a daily price limit range of plus or minus on the high end for the week. What’s this look like? A 68% probability on the high end for a $2 and 5 cent move. On Monday, we got up to 56, 32 for the high and 54, 79 for the low.
But, it wasn’t quite in that exhaustive $2+ range.
So while I don’t mind taking advantage of exhaustive moves… this wasn’t one, and it didn’t reach the upper end.
However, that doesn’t mean they’re weren’t OTHER opportunities.
STEP TWO: Going Wide
In the video below, I show you several different charts that depict some other places to look based on this crude oil move…
Basically, one of the charts in the video above, is a futures first type view of looking at ETFs and individual stocks. But it’s important to start with the commodity that oftentimes will drive them.
As a result?
We’ve been short XOP in the futures live trading room for some time. (P.S. if you want to come get short XOP with us, you can grab a $7 trial for Futures Gold here.)
So then what to play?
Well, I want to take advantage of more bounces into the wave. XLE has recently gotten with the program, which is great. Why? That presents more variety, more opportunity to find more occurrences of short sells with crude oil. Because I don’t want to build a trade that’s all crude oil, crude oil, crude oil.
That’s what I call going deep.
I want to go wide.
How do I do that?
While crude oil could be the focal point for the trade, you need something else. In this case, either CL or USO would do the trick. However, you could also consider looking at any of these other contracts:
- A lot of the heavily weighted stocks
That’s how you ‘go wide’, Gang.
Why is this so important?
Because a lot of traders will find a narrative (like the crude oil move), and they’ll just pile into that single symbol. So today, I started to crack open the narrative for XLE and XOP looking for relative outperformers to the downside.
And who did I find?
STEP THREE: ConocoPhillips and Valero Energy
Try ConocoPhillips and Valero.
I was cherry picking the best of breed in that regard. Starting with the move to the upside (that got everyone’s attention), I looked for opportunities that can form because of that… which led to the two I mentioned above.
So the next time you’re building a trade, and you’re looking at a sort of touchstone commodity — for example, Dow futures. Try this…
Look at the heavily weighted sectors in the Dow futures, look at the heavily weighted stocks in the Dow futures, and then look at the heavily weighted stocks in those stem sectors. This let’s you ‘go wide’ not deep. Then you have a connected trade where you’re looking for relative outperformers in the same direction as the border average or ETF to build positions.
And by the way, keep XLE and XOP on your radar, too.