Stock Market

Trade of the Day: Bet on ConocoPhillips (COP) Stock’s Possible Morning Star Pattern

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ConocoPhillips (NYSE:COP), a firm that operates within the oil and gas exploration and production (upstream) segment, may be on the verge of a turnaround. Although COP stock has had a rough five trading sessions, evolving 2024 election odds are starting to favor shares.

More specifically, following the first presidential debate between President Joe Biden and former President Donald Trump, betting odds for a second Biden term plunged. One betting market shows that his odds of reelection briefly touched as low as 9%.

For oil and gas companies like ConocoPhillips, those odds are favorable. That is because, based on comments that the former president has made, a Trump administration will almost surely be supportive of Big Oil. Another term for Trump could see sustained momentum in COP shares.

ConocoPhillips Bulls May Be Waking Up

Following the close of the July 8 session, COP stock printed a small-bodied candlestick pattern with small “shadows” or wicks on both ends. Essentially, this is a candlestick formed by a narrow opening price and closing price gap. The intraday high and low did not deviate that much from the opening and closing price; hence the small shadows.

Preceding this move, the July 5 session was characterized by a red, large-bodied candlestick. Here, the closing price was significantly below the opening price, leading to the large candlestick along with the red color. Now, if the next move – the July 9 session – involves a large white candlestick (that is, if COP stock finishes significantly higher than Monday’s close), it would potentially signify a morning star pattern.

Long story short, morning stars are reversal patterns. Basically, the bears attempted to drive down the price of the target equity but were only temporarily successful. Having fired their last round, the bears have exhausted their energy. That gives an opportunity for the bulls to take control.

Chart from TradingView.com

Now, we don’t know what’s going to happen in the next several hours to Tuesday’s market close. However, if you believe that COP stock is in the final stretch of forming a morning star, betting on the equity now could be quite lucrative.

Trade of the Day: Buy COP Stock Near-Expiry Call Options

Based on the fundamentals, I believe that COP stock offers a viable long-term investment idea. At the same time, the Trade of the Day focuses on the immediate framework: buying near-expiry call options. Specifically, the 2024 July 12 $113 call.

To be completely upfront, this is a high-risk, high-reward idea. This option expires this Friday so you must be quick on the trigger no matter what happens. However, the thesis is that if COP stock is forming a morning star pattern, it’s liable to rebound sharply and quickly over the next few days. As an added bonus, this contract was significantly cheapened during Monday’s session.

Of course, the danger is that we’re assuming COP stock is indeed forming a morning star. If it’s a fake out, all bets may be off. Since technical analysis is neither technical nor a science, you will be depending on prior market psychology. Just keep that in mind when you assess this trade.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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