Oil and Gas Stocks Outlook and Trading Plan for August 23
Aug 22, 2017 Trading Blog
Sometimes you look at a day and it just makes no sense whatsoever. That was today. Being more of a technical trader, I look at the characteristics of individual days, but I also look at sequential days to see if each day corresponds with the whole and tells the same story, and today most definitely did not fit with the pattern over the last couple weeks. Something was different about today, but I can’t say for sure what it was. Was it the beginning of something new or just an anomaly?
The range over the last 14 days is about 76 cents, today’s range was 27 cents. That is crazy tight with no volatility at all. Average volume over the last 10 days is about 15 million shares, today we did 9 million. The consolidation, which started last Thursday, continues.
Outlook for Wednesday: After four days of consolidation, I would expect a breakout, but until we see some volume we could just continue to drift sideways. My guess is that we break to the downside, as I don’t really see a pattern in place that would reverse this 9 month downtrend. I think what we may have seen today was a lack of active selling combined with some of the energy stocks getting caught up in the overall SPY upmove of 1.1%. A bit of a relief rally, but how long can we expect that to last? Today may have been more of an overall market upward bias rather than an energy specific move. Had there been any big demand in the XOP at all, today should have seen a bigger move up. There seemed to be a great deal of supply being poured on what little buying there was, which kept the index in a tight range. I’m leaning more toward the XOP breaking the 28.96 level again, but will be cautious as it could bounce since we are a bit compressed to the downside. Any decent EIA number on Wednesday could jolt this thing to the upside.
Trading Plan for Wednesday: All of the above was written after the market closed but before the API number came out. API number was not good: -3.6 draw on oil, but gasoline was a +1.4 build and distillate was an even bigger +2.1 build. The 3.6 number, even though it is good, might be a letdown after recent huge draws. If this low volume and low volatility was hesitation and consideration in front of this week’s reports, then we could be looking at a drop. Everything will depend on how much volume responds to the number. Given this number, my plan for tomorrow is to wait patiently and see if we get that drop back to the 28.96 level. Basically, the same plan I had going into Tuesday before the sequence of days was interrupted by today’s bizarre action. Any bad EIA number could drop the market, at which point I want to find a spot to get long.
Individual Stocks: DVN was weak today, but it wasn’t weak enough to buy in yet. It is one of my favorite stocks and I’m looking for any 2-3% drop to start in. The NBL/APC pair was also weak. These two are very similar with a presence in the DJ Basin. When they move together, there may be some underlying reason. Two other DJ Basin stocks that I watch were also red today: PDCE and SRCI. Not sure if this is directly related to geography, but what are the odds of all four being weak on a green XOP day? HAL continues to be weak and I’m hoping for that one to break under 38 for a play. In the natural gas area, COG, RRC, EQT, SWN and AR all had big green days.