ConocoPhillips (COP) had a good trading day, finishing up by more than 1%. Since hitting lows on November 25th, the stock has climbed over 13.5%, looking promising for early investors. However, the technical analysis shows a concerning pattern on the daily chart. COP is trading within an upsloping parallel channel, which could suggest that momentum is weakening rather than gaining strength.

Key Level To Watch

Keep an eye on the lower boundary of this channel. If COP breaks below this trendline, it might indicate a downward shift, implying the rally is losing steam. Traders have two main options: enter when the lower trendline is definitively broken or wait for a pullback to the channel’s bottom before buying. It’s essential to manage risk carefully, as outcomes from patterns are never guaranteed. Understanding COP’s technical setup is crucial, even after recent gains. The stock has been within this range since late November, and its pattern could significantly affect future movements, so monitoring it closely is important. The bearish upsloping channel developed after COP’s rally from the November 2025 lows. As of January 14th, the stock is now close to the lower boundary of this pattern, making this moment especially notable. This pressure is increased because WTI crude prices have fallen by 8% over the past three weeks and recently dropped below the important support level of $70 per barrel.

Consider Positioning

In this context, we might want to prepare for a potential decline in the stock over the coming weeks. Buying February put options is a straightforward way to profit from a decrease while limiting our risk to the premium paid. This strategy would be most effective if COP breaks through its channel support before the next earnings report, expected in early February. In the past, we saw a similar technical pattern with an energy competitor in the summer of 2024, resulting in a quick 12% drop the following month. Currently, implied volatility for COP options is around 31%, which is high but suggests that the market hasn’t fully accounted for a sharp decline yet. Thus, the entry cost for puts remains reasonable compared to the potential downside if the pattern plays out as anticipated. For a more cautious approach, we could use a bear put spread by buying a put while selling a lower-strike put. This strategy would reduce our initial costs and lessen the effects of volatility decay as we wait for a possible decline. It’s an organized way to aim for a specific downside target, such as a return to the November 2025 lows. The trigger to enter remains a clear daily close below the channel’s lower trendline, around the $118 mark. We must be ready to act quickly if this support level breaks, as such technical failures often lead to increased selling pressure. Our risk management will depend directly on this pattern’s integrity. A strong bounce from the support would suggest we should hold off on any action. Create your live VT Markets account and start trading now.

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