Oil and Gas Equities Outlook for Wednesday, March 14, 2018
Mar 14, 2018 Trading Blog
I’ve been trading energy stocks for awhile and I can’t recall the last time I was more discouraged with this group. They seem to be the most hated sector in the entire market and absolutely no amount of good news can change their status. The only thing I think Wall Street puts below oil stocks are gun makers, and that’s pretty bad.
Tuesday was just another failure for the group with a rejection at 35 for the second consecutive day. The 50 day moving average at 35.11 just stopped the run dead cold. The more I look at this daily chart, the more I’m seeing it as a very rough bear flag or a somewhat distorted rising wedge, neither of which is good. I think the most frustrating thing is that I really don’t think there is that much supply out there on the market. If buyers really wanted to push this sector, they could probably hit it for a quick 10% gain. The problem seems to be that there just aren’t any buyers out there willing to take that gamble.
I’ve been looking at these individual E&P names and most of them can’t even get above their 50 day moving averages, which is a sign that big money isn’t interested. This is even after pretty good earnings, $60 dollar oil and a shift by most to give a good bit of return back to shareholders. All of those concessions still aren’t enough to entice buyers. At this point, I just don’t know what else you could ask of the energy companies that would make people more interested.
Maybe my frustration and disdain for the sector is a sign that we are nearing a bottom. They say when you are usually about to throw in the towel, that’s usually the bottom. I’ve been looking at some of these charts and trying to figure out where I would like to enter if the overall market had another correction, and honestly, I’m beginning to even wonder if I want to own any of them since it seems the upside is capped. I mean how much more perfect is the environment going to get for energy beyond what we have now? Does anyone really see oil establishing itself in the 65-70 range? I don’t. This is also after a whole first quarter with oil above $60, which should produce some spectacular earnings reports during the next round of reporting, and still nobody is interested. I just don’t know what else investors want, and further I really wonder what is going to happen to this sector if things suddenly become less attractive with oil falling back into the mid to lower 50’s and interest rates continuing to climb. It seems that the future industry environment could be worse than the present environment, and that could just crush these stocks. The gamble on a limited upside just isn’t worth the risk that these stocks get absolutely crushed if oil slips back down.
I’m sorry for the negativity, part of this is just a rant out of frustration, but you have to put an honest evaluation on the table, no matter how much you like trading a sector. I’m probably going to be on the sideline for awhile until these stocks show some sign of life. I’m going to need to see them convincingly take out that 35 level and the 50 day moving average before I get interested again. Otherwise, I’m just going to wait on the sideline and let them drop to the bottom with the occasional short.
I’d really like to put together a nice portfolio of energy stocks for the next couple months, but right now the money just seems better applied elsewhere. I love to daytrade this sector, but I also want to be able to swing trade for some bigger (and easier) gains, but the opportunity just isn’t there right now. Honestly, outside of that one drop in February, the daytrading in this sector hasn’t even been that great over the last month with most of my favorite stocks just moving sideways most of the time. I even looked at one of my old favorites, ECR, which is sitting at $1.60, and I’m just not interested. I waited for months to buy that stock under 2.10 and now I have absolutely no desire to touch it nearly 25% lower. I feel incredibly lucky to have barely escaped that one breakeven. Things have certainly changed in energy land. Yes, I’m very discouraged right now, but I’m going to give the sector awhile longer before I look elsewhere, but my patience is really beginning to wear thin with these stocks and the lack of longer term trading opportunity.