Coach Mark here. Oil has an actionable signal today (chart below) in what has been an excellent cash flow environment for energy with directional possibilities building. We have been pretty pro energy in the last stretch on the Trading Justice podcast and Halftime Report. For me personally, oil has simply had factors for it that make it standout against many other cyclical type plays.

All cyclical stocks are prone to pressure when you have recessionary vibes. All cyclical stocks are prone to benefit from stronger economic conditions. This is cyclical stock analysis 101. What makes oil stand out for me in comparison are factors that your average cyclical stock does not enjoy.

You have OPEC + who is relentless in the cutting of supply to help prop up price. U.S. producers have also been very generous in the cutting of supply rigs to keep the supply side equation balanced. This supply side vigilance on oil producers around the globe may frustrate you when you fill up at the pump but from a trading perspective must be acknowledged.

From an energy stock perspective, valuation is something that stands out. While one might debate the overall expensiveness of the market, it is hard to look at the fundamentals of your average oil producer and argue anything other than the fact that they look cheap.

I could go on (long-term underinvestment in energy) but oil has a case. When you get an actionable signal on a chart is worth discussing that case for a minute.

Chart of the Day: Crude Oil Futures (/CL)

Oil triggered a cash flow signal for me after it broke out of the short-term resistance level after pulling back and consolidating. This “breakout” signal usually indicates potential additional upward movement but also indicates that it is going to be lot harder to go down in price making credit opportunities in play. Directional traders likely need to have additional confirmation over recent resistance but it is a nice classic cash flow pattern.

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