Oil and Gas Equities Outlook for Wednesday, February 14, 2018
Feb 14, 2018 Trading Blog
We went from huge volume and all the action I could handle to almost a complete stop in one day. The XOP volume on Tuesday dropped to about 10.8 million shares, which is about a third of where we had been running over the last 8 days. The range for the day was also very small at just 56 cents from high to low. Those are two good signs that the market is taking a breath and doing some much needed consolidating.
The real question now is whether or not the sellers are done. Have they unloaded everything they wanted to dump OR have they simply stopped selling for now hoping that the market will bounce so they can return to get better prices on their next round of selling? The buyers certainly didn’t seem to be in any rush to stampede in to get these XOP shares under 33. Without some increase in interest from the buyers and sellers, we likely just sit here and continue to consolidate on light volume.
Outlook for Wednesday: I really expected a better bounce yesterday to continue the move that started late Friday and carried over through Monday. The fact that we kind of fizzled out is worrisome, however it wasn’t all bad as the volume was light and it wasn’t like the sellers returned in force. The buyers just weren’t interested and they didn’t feel any pressure to buy in fear of missing out on low prices. The sector continued to show a fairly strong relative weakness with the SPY finishing up about +.3% and the XOP finishing down -1.4%. The API number wasn’t that great with a build of about +3.9 million. The EIA number is at 10:30.
My main watch today is simply yesterday’s XOP range, with 32.60 on the bottom and 33.16 on the top. Specifically, I’m looking for one side of the range to get tested and rejected, sending us running toward the other side of the range for a nice trade. This is one of those days where I really have no feeling for which side of the range we test first. If I had to guess, I’d guess we test the lower side at 32.60 due to the API build. I’d be willing to take a shot long there if price rejects a move below Tuesday’s low. The top side of the range is a bit more tricky. I really feel like the top of the range has a good chance to break and we get a test of 34. This week’s high is 33.55, the 200ma is 33.76 and the 8ma is 33.84, so we have a lot of resistance overhead. One other hidden level is the 33.43 level, which was the .618 Fib level measured back from the August lows. It likely has now flipped from support to resistance and there might be a group of buyers there who are now looking to get out breakeven at that point.
If we break down below Tuesday’s range and accept price there, we are looking at getting into that huge hammer candle from Friday. Once we get in that, there is a small level at 31.70, but there is no telling where this thing could go if the sellers returned in force.
The only other trade I really like is a short at the 34 level. I think that level probably stops this whole bounce off the lows and could force us all the way back to retest those lows. I’m not really seeing 34 in the cards for today, but you never know.
Good luck out there and be careful as the volatility could return at any time, without warning.