Trading Plan for Monday, March 18, 2019
Mar 18, 2019 Trading Blog
I posted this week’s decision tree on Twitter (which you can see on the right side of the page). Three major options for trading this week, all set out below.
Volatility was very low Wednesday through Friday for the XOP, which could be suggesting that we get some type of move soon out of that contracted range. The SPY showed a similar pattern, but at least the tight range there was nearly at new highs, not so for the XOP which still lags well below that 44 level that it reached back in October when the SPY was at 293.
I’m focused on only trading XOP this week, especially if this market turns into a short opportunity. If you want to be short energy, don’t short the XLE. XOM and CVX have just been too strong and they make up about 42% of the XLE. Go for the easier kill on the short side, which is the relatively weak XOP.
I usually try to post my trades, at least my first entry, but most of my trades are entered with multiple 500 share pieces and posting all those entries/exits is something I’m sure nobody wants to see or wants on their Twitter timeline. I try to consolidate the trade down to my average price, but mostly I just post my plan and leave it at that.
A lot of OPEC meeting talk early premarket today and this will likely whip oil around most of the day. OPEC doesn’t really seem too concerned with anything that is going on and they are simply happy to just hold the course of what they are doing. That’s probably an indication that things have stabilized for oil and the price range might be pretty narrow for the next few weeks.
XOP – I think there are basically three paths the XOP can take this week: 1) it opens strong and runs right toward the 31-31.50 range for a breakout attempt, 2) it moves down to retest the 28 level and turns upward for another run at 31, 3) it moves down to retest the 28 level, fails and breaks down. There’s always the possibility that it does absolutely nothing and moves sideways all week between 28 and 31, but that’s not really going to do us much good from a trading plan perspective. I think the odds of 1 and 2 are about equal, with 3 being much less likely.
Path 1 – If the market looks strong, I’ll be looking for an early pullback Monday to the 29.60 level to try a long. That area in the 29.60-29.75 held as decent demand Wednesday through Friday, and it should hold again early this week. I’ll be looking for a bounce into last week’s high of 30.28 for a possible breakout attempt to 31.
Path 2 – If the market breaks down at 29.60, it could make a move back toward the 28 level, which was last week’s low. That would be the third test of that level and a big decision for the E&P’s. If this were to occur, the trade sets up good for a long OR a short with a fairly tight stop. It’s just one of those points where you have to play it by ear depending on what the SPY and Oil are doing. My first choice is to take a long position at 28 and look for a big bounce, especially if the market moves a bit under 27.80 and takes out all those stops before reversing upward. If the market grabs those stops and reverses, it could be a very sharp run back toward 31 and out the top. The risk on the trade would likely be about 50 cents for a 2-3 dollar profit if we can get a bounce back to 30 and maybe a run at 31. The more difficult trade is going to be a short at the 28 level, mostly because there isn’t yet anything to play off of for a risk controlled stop.
Path 3 – The dangerous path for the XOP would be to start the week off by moving straight down to the 28 level for a decision there and failing at that level. If 28 fails, there isn’t much to keep the market from running right to 24. I think this is probably the least likely path of the three options. If this option looks likely, the play for me is to try and let the 28 level break and then wait for a bounce to retest it from below, at which point I can get short and use something just above 28 for my stop. If the trade works, I could probably get by with a 50 cent stop and possibly capture 3-4 dollars on the downside. If the SPY continues it’s normal strength, I don’t see path 3 as being very likely.
Individual Stock Trades:
SM and CRZO – These two are looking to merge. Not sure why. Maybe two weak companies think they have more chance to survive if they combine into one larger weak company? Or maybe a combined entity becomes more attractive to a larger company. This seemed to be the approach when Newmont acquired Goldcorp, then almost got acquired by Barrick. Either way, I really want no part of either E&P, just listed here for the news aspect.
PE, MTDR, JAG – I will be interested in these three stocks if the XOP rolls down toward the 28 level. I’d like to wait as long as possible for a breakdown of 28 before taking long positions here. If the XOP does break down, I think there is so much negativity surrounding the small/mid Permians that they will take a huge dip down for great bargains. I’d like prices on these three down near the Christmas Eve levels.
HAL – Much the same plan as the three Permians listed above, I’m hoping for a dip down toward the 25 level for a long.
APC – This one technically sets up very well for a long attempt on any break above 46. There’s easily room for a run to 50.
XOM – This is the stock that worries me right now in energy and the one that will likely break down first if energy rolls over. That 80-81 level looks like strong supply. If XOM rolls over, there could be downside to 74-75 area. Keep an eye on this one as an early overall energy sector signal.
COP – I feel the same about COP as I do about XOM, it’s probably the early signal for the E&P’s. The 65 level has been support since early January, so keep an eye on that level for a breakdown and early warning for the E&P’s.
CNQ – This is one that I sometimes take my eye off of, but probably shouldn’t. It is setting up a nice base and could be a nice long if it can break the 29 level. If money wants to move to longer term projects and get away from the high decline rates of shale, this could be the way to go, especially if heavy oil continues to rise in price vs. light.
EOG – Watching the 82-84 level for a long attempt. This company is still quality and I think people are getting too down on it. If the overall sector moves down, this one could be unfairly punished and would be a great bargain long.
RRC – Natural gas play that has a very defined technical setup. There’s a strong base around 9.25 and good consolidation action sloping down from 12. If this one takes out the trendline that began back in mid-January and can take out 11, it could take a shot at 12, and then more.
APA – The strength in this one is pretty amazing considering almost everyone hates the stock. It has the best momentum of any of the major XOP components and could continue to move toward 40 if the E&P’s strengthen.