XLE Looks Ready to Power Higher

Crude oil could take out $100 a barrel before spring, and this speculative call position would profit from such a move.
By Skip Raschke ,

The technical pattern of the

Energy Select Sector SPDR

(

(XLE) - Get Report

; $65.82 at the close Friday) has signaled that it is time to speculate on higher prices coming for this ETF over the next several months. The XLE twice this year tested the low $50s; the fund not only weathered that selling, it has now broken out from more than two years of backing and filling and faces little overhead resistance.

Crude oil could take out $100 a barrel before spring. XLE calls would approve of that move, as owning oil stocks on that price event could cause huge buying in the oil stock sector -- maybe enough to pop XLE into the $70s or higher.

That world oil demand is growing is no surprise. That world oil demand could soon be exploding would be a very big surprise! Most of 2010 has been awash with negative press about the economy; very little has been said about how far the price of crude oil might rise when the next bull market comes around again ... if it hasn't started already.

While it is an economic fact that supply chases price, that is true only to the extent that supply is available to do so. "Peak Oil" is a theory today. But I would not want to be short oil when "Peak Oil" becomes a reality! Until that time, speculating on the calls on XLE makes trading sense.

Trade: Buy to open 1 XLE January 65 call for $2.30.

The total risk is the premium paid for the call. As always, I will monitor the trade in the comments section on this site.

At the time of publication, Raschke had no positions in the securities mentioned.

Skip is a former registered options trader and member of the Philadelphia Stock Exchange. He was an equity options analyst and broker with Paine Webber and a proprietary trader for Van Der Moolen. He served in the USMC, as well as played minor league baseball with the N.Y. Yankees organization. He is an independent stock and options market consultant.

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