Another day, another high for oil.
The commodity briefly touched its highest level of 2016 on Wednesday after government data showed a fall in production. Crude is now up nearly 14 percent since early January, making energy one of the best performing sectors in that period, having risen nearly 7 percent.
“We’ve seen quite a recovery in the crude oil market and the underlying stocks in the energy sector are indicating that the uptrend can continue,” Todd Gordon told CNBC’s “Trading Nation” on Wednesday. And according to Gordon, a breakout in one of the sector’s biggest stocks could pave the way for the entire space.
Looking at a chart of Chevron, Gordon noted that resistance around the $90 region has been broken. “Resistance becomes support and that should help push the stock higher,” said the founder of TradingAnalysis.com and a CNBC contributor. Chevron is the second-largest stock in the XLE, the ETF that tracks energy stocks, with a weighting of nearly 15 percent. “I think we can get through the next zone of resistance around $100,” he said.
To play for the next leg higher in Chevron, Gordon purchased the May 100/105 call spread for $1.30. This is a bullish strategy where a trader will buy a call and sell a higher strike call to offset the cost. The goal is for the stock to rise to the strike you are short, or in this case $105 by May expiration. That represents a nearly 8 percent move in the next month.
“Chevron looks solid and set to move above $100 as the oil recovery continues,” Gordon said.
