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Energy Equities Outlook and Trading Plan for November 11-15

It was a decent week for the E&P’s with the XOP adding 90 cents from last week’s close. The action on Friday was encouraging and I think there may be some room to run this week. Trading on Thursday and Friday was very calm and felt like the demand just pulled back to see what kind of sellers might show up, however the sellers just never showed up. There isn’t much supply over the market right now, which could lead to a nice run toward the 24.50+ area this week.

 

The regular indicator stocks are all running. CVX closed near 121 and XOM reached 73. COP held that 57 level and closed even higher at 59.17. The service stocks closed near the highs with SLB finishing at 36.34 and HAL ending at 21.28. Even the refiners continued to run with PSX and VLO finishing near the highs for the week. The generals are leading and the rest of the sector should follow.

 

It’s been a long time since I’ve started a week feeling this good about the energy sector, but things seem to be turning positive in the short term. The SPY will have to keep making new highs, but if it does energy should be in pretty good shape for the next week or two. The real test for energy will come when the SPY makes that first pullback under 300, but who knows how long that could be from now.

 

Trading Plan for the Week: It’s a very short writeup this week, as there’s really only one play. The play this week is to find a safe place and just get long the XOP. You want to find some pullback Monday morning that has a defined, concrete stop and take your chances for a big run. It might take a couple of tries or a multiple entry scale in to get that initial position, but the reward could be worth a few small losses. The overall market is running and you just don’t fight that. Shorting energy right now just isn’t an option, however it could become an option if price climbs to that 25 area. Fast money should continue to look for quick gains in beaten down sectors. I don’t plan on doing much daytrading in the energy sector this week. The best approach here is to take a position on Monday morning and just let it run for the week.

 

The pivot for the week is still 22.68. As long as price can hold that level, there’s an opportunity for a big run. If 22.68 breaks, the next level is 22.20, which is the 8 day moving average. Those should hold. If they break, the first significant level on the downside is that old 21.55 point, which has been the center of the fair value range for the last few months. If it pulls back toward 21.55, I’ll be trying another long trade there, and I’ll probably be doing it with very large size.

 

The only thing that would make me change this plan is if the SPY has a clearly defined reversal and starts a pullback. Energy isn’t going to run if the overall market falls. I’d watch 307.80 and 306 as the first warning signs of a pullback.

 

I’ve moved almost all of my daytrading to the IWM and KRE. Those two have just been trending too strongly to ignore. I’m looking for daytrades on the long side for IWM this week and I think there’s a very good chance that it makes an attempt to break out from that 161 area. Last week it consolidated at the top of the range, which created an attractive buildup area for a breakout try. KRE is trading very similarly. If the small caps can break to the upside, that would confirm all the other new highs in SPY, DIA and QQQ.

 

One other play I’m watching this week is GDX. It’s sitting right on the bottom of the range that began back in early September. If it dips back under 26, I’ll be starting a long position. I’m thinking that the dip below the range should force the larger money to show their hand. They will either step in with big demand around 26 and form a spring or else it will fall sharply. This isn’t a trade where you plunge in, it’s a situation where you let the drop happen and then watch for a retest of the low that holds on light volume. Let it drop under 26, bounce back near 26.25 and then look for a spot on the next drop back to 26 and hope that it holds there.

 

Sorry for the short writeup today, but I’m recovering from that terrible Alabama loss. I don’t think one bottle of wine is going to get the job done today. Looks like a two bottle day. Enjoy the rest of the weekend!

 

 

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