Phillips 66 (PSX) is experiencing significant changes in its stock price in the downstream energy sector. Recently, the stock broke below an upward support line it had maintained since June, causing concern among technical analysts. This break happened in late December when the stock dropped to around $129.99, falling below a key support level. Now, this former support line may become resistance, a concept known as polarity shift in technical analysis. If the stock rises back to the $134-136 range, traders should pay close attention. Bearish investors might see this as a chance to open short positions, expecting the stock to decline further. However, if PSX recovers and closes above $136, it could indicate a false breakdown, potentially triggering a bear trap and attracting more buyers.

Bullish and Bearish Strategies

For bearish investors, the plan is to wait for the stock to move back to the $134-136 level before starting short positions, with protective measures set above $137. On the other hand, bullish traders should wait for a solid reclaim of the broken trendline with strong volume before considering long positions. A stable move above $136 would suggest that the bearish outlook is no longer valid. As we near the end of the year on December 24, 2025, the situation with Phillips 66 is crucial. The stock has definitely fallen below its long-term support, raising the question of whether this is a real reversal or just a temporary dip. The next few weeks will be important, especially since holiday trading volume is typically low.

Option Strategies on PSX

For those with a bearish outlook, the approach should be to look for a bounce toward the $134-$136 resistance level before making a move. This possible retracement creates a chance to buy put options, possibly with expiration dates in February 2026, and a strike price around $130. Recent EIA data showing a 5% narrowing of crack spreads and an unexpected rise in crude inventories last week supports concerns that refining margins might be under pressure. In contrast, if the stock pushes back above $136 with strong volume, the breakdown would be seen as a failed move or bear trap. In this case, traders might consider call options to take advantage of a potential recovery toward the $145 highs. Some analysts expect a rebound in fuel demand as we enter the first quarter of 2026, supporting this view. With these two distinct but opposing scenarios in mind, implied volatility for PSX options has increased, indicating market uncertainty. This makes options strategies that benefit from substantial price movements in either direction worth considering. A long straddle, for instance, could be used by traders confident in a significant move but unsure whether the breakdown will prove sustainable or not. This technical situation is similar to the volatility the energy sector experienced in 2023 when geopolitical news led to sharp but often temporary trend breaks. Lessons from then highlight the importance of patience, as the initial move following a breakdown can be misleading. Waiting for confirmation of either a failed rally at resistance or a strong reclaim of support remains the sensible approach. Create your live VT Markets account and start trading now.

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