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Overbought Stock of the Day: China Petroleum and Chemical Corp (SNP)

Overbought Stock of the Day: China Petroleum and Chemical Corp (SNP)

Energy companies have joined the market rally recently with some strong performance in recent sessions. Steadily rising oil prices, plus favorable comments about global production from OPEC members have led to a number of energy plays getting overbought in the short-term.

One such play is China Petroleum and Chemical Corp (SNP). The company’s most recent move higher has also benefitted from perceived softening on global trade with the incoming Biden administration.

In any event, shares have likely moved ahead of themselves, at least in the short-term. Shares have surged from $45 to $53 since the start of the year. With a relative strength index reading of 78, and with shares well above their moving averages, the move has been too far, too fast.

Action to take: A modest pullback here is likely. The July 2021 $40 puts are unlikely to move in-the-money, but the option has a bid/ask spread near $2.00. It’s an inexpensive play likely to deliver low-to-mid double-digit gains on a pullback.

Traders should look for a swing upward following a small pullback. Shares just recently had a golden cross, where the 50-day moving average moves over the 200-day moving average. That’s a medium to long-term bullish trend. The July 2021 $55 calls, currently going for about $3.75, can likely be bought under $3.00 on a pullback before the next move higher.

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