Oil and Gas Equities Outlook for Tuesday, February 13, 2018
Feb 13, 2018 Trading Blog
We got the Monday bounce that almost everyone was expecting, which pushed the XOP up 2.6% to a closing price of 33.23. The overall market also bounced about 1.5%, with the SPY closing at 265.16. The real key now is to see if it was in fact just a dead cat bounce or the start of something more. If you read Saturday’s post, you know I am in the camp of this being merely a quick bounce on the way to lower prices. I’m looking for this market to bottom somewhere in the SPY 245 range.
While people might step up and buy this first dip (because that is what they have been trained for years to do), the real problem might start when this rally runs out of steam, fails to make new highs, and then starts the second leg of the correction. If the market puts in a lower high and then takes out the recent lows, that is a pretty clear trend change and the TA people will be screaming how the trend has changed. The real question will be if retail still has the stomach to buy the dip again.
Since I am of the opinion that this is just a quick bounce, I took the opportunity to exit my positions in PE and JAG on Monday. PE was up about 6% on day at the exit and JAG was up about 4% on the day. That run, combined with the big bounce on Friday, recovered a big amount of the loss for February. These two might have more to run on the upside, but in this volatile market I think holding positions is playing with fire and sometimes the safest route is to just take the small loss and move on. The only position that I have left is ECR, which turned out to be the only winner. Also, sometimes it isn’t solely about the money. I have spent so much mental capital managing these positions and monitoring them, that it has distracted me from doing what I do best, and what is best in this type of market – daytrading.
Outlook for Tuesday: I think we get some follow through on Monday’s rally until about 1 pm EST today. The morning should still find bargain hunters looking for deals and shorts covering their remaining positions, but at some point traders are going to do what I did and cut their losers as they get close to breakeven, which will likely end the rally. Focus could shift quickly back to interest rates, which in turn could push the dollar, in turn pushing commodities like oil down. The SPY has the 8 ma and the 50 ma sitting overhead and I think that 50ma at 270 probably caps us for awhile. The obvious target on the downside is the 200ma and recent lows sitting in the 253 area. I think we probably make a run at those lows in the next week or two.
As for the XOP, I’m looking for a pullback on the open to give it a trade long for a morning run back toward 33.50. I think we probably dip to test that 32.80-33.00 range for a nice entry long. We should test 33.50 again and break through those highs to make a run at 34. I think 34 probably stops this rally cold. The 200 ma for the XOP is sitting at 33.77. The relative strength difference is obvious with the XOP below it’s 200ma, but the SPY above it’s 200ma. If the XOP fails to get back above the 200ma, that is a pretty good clue that energy stocks are lagging and probably not going anywhere anytime soon, especially if the SPY then makes a move on the 200ma.
On the downside today, if we don’t get follow through on Monday’s bounce, the important points to watch are 32.73 and 32.67. If we break those and establish price outside Monday’s range, we are probably looking at 32.29. Any break of 32.29 sends us down into that hammer candle from Friday and anything could happen there.
My favorite trade this week is a short on the XOP at 34. I don’t know when we might reach that point, but that seems to be the point of decision for the index. If price rejects that level, we could make a run back toward 31 for a nice trade.
Individual Stocks: I’m not watching anything right now. My sole focus is on the XOP for short term trading in this volatile market. I like swing trading in a low volatility environment, but trying to control risk on swing trades in this type of high volatility is just too difficult for me. My approach to high volatility is to get in and get out as quickly as possible, with no overnight positions for unnecessary risk.