Well, that was a doozy…
Stocks got clobbered again on Wednesday in one of the worst sessions in recent memory.
This is what my index watchlist looked like an hour before the close…
The Dow ultimately fell 3.6%, the S&P finished the day lower by 4% and the Nasdaq 100 dropped a whopping 5.1%.
That’s about as bad as it gets.
These are the signs of major institutional selling pressure that I’ve been telling you about.
But there are still a few pockets of strength out there…
Exceptions to the Rule
There’s not much I would buy in this market. Like I’ve said, the sellers are absolutely in control right now, with each of the major indexes making lower highs and lower lows.
They’re all well below their key moving averages, and the volume on down days remains elevated.
However, there are two exceptions to the rule…
First, shipping stocks, which we covered earlier this week.
And second, the energy sector, which is setting up some very clean chart formations…
I think we all remember when the price of oil went negative back in April 2020…
The front-month contract price went straight down to settle at -$37.63 per barrel.
Just under two years later, in March of this year, crude traded for over $130 per barrel…
Like the move into negative territory, this recent run saw crude oil move into very extended territory.
And naturally, price has come well off of the recent highs. All of that was to be expected.
However, the crude oil chart is once again setting up in a classic volatility compression pattern.
Price pulled back a little over the last two days, but it is holding above the 50-day moving average for now.
To me, this looks like a pretty textbook base. I was expecting it to break out this week, but it may take a bit longer than I originally thought.
And that’s okay, as I have a better way to play the energy sector…
Permian Basin Royalty Trust
Permian Basin Royalty Trust (PBT) is a small-cap, $660 million oil trust that receives ongoing royalty interests from oil- and gas-producing properties in Texas.
It’s a great business to be in right now.
And from a technical perspective, the setup for PBT is even cleaner than the futures market setup.
As you can see, the stock formed a five-month base since its peak back in January.
Throughout that time, the stock has created a horizontal resistance level in the $14-$15 range that has kept a lid on prices.
But I think it’s about to break out to the upside. And I took a position in the stock, as you can see on the chart above.
The stock has tested resistance in each of the last three days, and it is holding nicely above its 21-day and 50-day moving averages.
This is not a trade recommendation, but I wanted to give you an example of where I’m seeing bullish opportunities in this market.
I certainly think there’s upside to be seen in the energy market from here, so I’ll keep you updated on this trade as it transpires.
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Embrace the surge,
Editor, Stock Surge Daily