Oil and Gas Equities Outlook for Monday, April 2
Apr 2, 2018 Trading Blog
Sorry for the lack of posting lately, but there just hasn’t been much to say with energy stocks trading in a very tight range for the last couple of weeks. I’ve actually been trading the SPY more than the XOP/XLE because of the complete lack of direction in energy. I’m hoping that changes soon and we can break out of this 66-69 range in the XLE and the 34-35.50 range in the XOP.
I’ve got three possibilities sketched out for energy stocks using the XLE:
- 1) We continue the range. This would probably mean a move back up toward 68.20 and then 68.50 today or tomorrow, and then maybe a fade and then a test toward 69 and then more fade sideways. That scenario really only allows scalp trading.
- 2) We are setting up a Bull Trap. This would probably mean a move up to 68.50, a small pullback and then a breakout of that supply level at 68.50 right smack into the supply level at and top of the range at 69. Price would likely peak just far enough above the range to catch all the stops and then dive straight back down to 66. I will be trading this setup short if it happens.
- 3)We fade to the bottom of the range at 66 and breakdown below it and possibly form a spring which begins a new uptrend leg. This all depends on the SPY action. If the SPY decides to continue its correction, then this move toward 66 is likely. I really don’t see the larger cap energy stocks which make up the XLE moving down to 66 if the larger overall market doesn’t also do the same. This scenario is the one I would like to see as it presents the best opportunity for some longer term swing trades on the long side. If we do break down below 66, pay careful attention to the volume, it must be very light to form a spring.
Any of these three could happen, or they could all happen consisting of some sideways chop for the next few days, a run at the top of the range and then a dive straight down breaking the bottom of the range. We could also get a breakout to the upside, but that really depends on the action we see as price tests that 69 area. Wish I knew which one was correct, but I really have no clue what the market is going to throw at us.
As for the XOP, it is a little stronger than the XLE. It seems to be the larger cap stocks that are holding the XLE back. The XOP could also form those same three setups above using the 34-35.50 range. I would expect a possible stop run again up near 36 to start the week and then a rollover after lunch on Tuesday and a fade for the rest of the week. Again, much of this depends on what the SPY does. 34 seems to be good support on the downside and I’d really like to try a long somewhere in the 33.50-34 range if it is offered. As I’ve been saying for the last couple weeks, there is really no hurry to get into E&P’s in this 34-35.50 range. Getting in now is just taking more risk than is necessary. If the SPY corrects, there could be some great deals on the downside that make waiting worth the small upside that might be lost if this sector does break unexpectedly to the upside. Even if it does breakout, I really think traders will have plenty of time to get long before the real run begins.
Good luck today and be patient out there and wait for your trade.