Oil and Gas Stocks Outlook for Friday, August 11
Aug 11, 2017 Trading Blog
The 31.10 – 31.20 level has held as resistance all four mornings this week and we would be lucky to get another test of that level today. There seems to be a very large overhanging supply up around that level and just not enough buying pressure to take it out. Thursday’s intraday pattern was very similar to the action on Tuesday and Wednesday, making highs off the open and then a sharp decline throughout the rest of the day.
30.40 – 30.50 is going to be the level to watch today. That was the area of each of the lows this week, and also the lows of the previous week. We should make an attempt to get back into the 30.50 – 31.20 trading range, but if there are sellers at the 30.50 level, we could be looking at a rejection of the range and new price discovery on the downside toward the lows of 29.90.
Also of concern is the SPY level. Big down day yesterday, but not really an absolute, more of a relative size. People have just been put to sleep by the lack of volatility over the last six months. It seems like they have forgotten that 1% moves used to be the norm, not the outlier. The low volatility has been just brutal for traders like me, but it won’t last forever, it never does. When volatility finally kicks back in, many traders will think something is wrong, rather than seeing this as simply a return to normal. Take advantage of that fear, especially if you have energy targets that you really want to pick up at a value. The return of volatility will be seen as fear and as something wrong with the market, but it isn’t, it is normal. You have to buy when you have the most fear.
Trading Plan: There are actually two options available today: 1) wait for a test of the lows and see how it responds to price auctioning down around 30.20 and if there is strength there then start looking for a long position to play a run up back into the 30.50-31.20 range using the morning lows as a stop OR 2) Let the break happen and then wait for a retracement back to the range and then play short around 30.50 on a rejection of the 30.50-31.20 range and a fall to new lows. Use today’s 30.65 pivot level as a stop. Volume should be the deciding factor, as the strength of the sellers is what we are evaluating in the first 30 minutes.
Stocks of Interest: PE and CLR were incredibly strong yesterday and those are probably great targets if momentum turns back up today. On the downside, APA just keeps getting crushed. There is just so much uncertainty in their Alpine High property, and uncertainty is something the market really hates in downtrends like we have now. I really like the stock and have it on the radar to pick up long soon. RRC also might be worth a look as it has just been destroyed lately, but did manage a green close in yesterday’s down market. Actually, most of the natural gas stocks were solid, but I think RRC probably has the most explosiveness back to the upside. Speaking of natural gas, I’d also like to see ECR dip back toward 2.00 for a purchase. Been watching for awhile and really liked that move after earnings. Sometimes these small caps get overly punished, and hopefully that will be the case with ECR.
Friday’s XOP Grid:
Thursday High 31.22
+.5 ATR 30.82
Thursday Closing VWAP 30.75
Friday Pivot 30.65
Thursday Close 30.39
Thursday Low 30.34
-.5 ATR 29.96