Trading Plan for Wednesday, March 20, 2019
Mar 20, 2019 Trading Blog
Oil is starting to look a little shaky again, which unfortunately is coming just as the XOP was making a run back to the top of the range for a possible breakout. Tuesday’s action was very discouraging for the bulls and left a difficult chart pattern as we start Wednesday.
OPEC decided that they don’t need an April meeting and also gave the signal that they plan on keeping cuts in place, which mostly means that oil inventories aren’t coming down as they had hoped and that they don’t have the prices they want. I think many people thought these cuts would have cured the supply problem by now, but they haven’t. This is really concerning when you consider that there is minimal oil coming out of Venezuela, Canada still has it’s issues and more waivers are being granted to Iraq.
The USO chart still shows an uptrend, but that thing is starting to morph into a rising wedge type pattern and a breakdown could be very quick if it happens.
We have the FED today at 2, so I’m not looking to get very involved before that time. The market should be completely dead for most of Wednesday. I think the announcement might be a little more hawkish than many are expecting. I just can’t see a dovish FED play here as the market is screaming toward all time highs. The FED has been irresponsible at times, but getting dovish here as the market is making this kind of run is just pure disregard for the longer term health of the market and I’m really hoping they aren’t going to be that careless.
SPY – The ATH sits around 293, and so far the market is showing every intention of taking that level out in the next month or so. Yesterday turned into a bit of a ‘Turnaround Tuesday’ and left a negative candle on the chart, but that hasn’t seemed to stop the SPY in the last couple of months, as one day candle patterns have been fairly meaningless. The 8 and 20 day ma’s still sit at 280 and 279, so there is good support for any temporary pullback on the FED. If the market doesn’t like the FED today, I’ll be watching 280.33 on the downside for first support and then watching that 279-280 area for second support. On the upside, who knows, this thing could rip right to 293 for all I know. It’s just a huge meltup going on and everyone has FOMO about missing it. Just crazy.
XOP – The XOP is still creeping along path 1 from Sunday’s decision tree, but it hit the wall at 30.91 on Tuesday. The index pulled back and gave up last week’s highs of 30.27, so now we are back in last week’s range, which in itself is a bit bearish. The next level is the 29.60 low from last Wednesday. If 29.60 breaks, there really isn’t much to keep the E&P’s from getting a head of steam to the downside and making a run back to 28 to test last week’s lows.
I’ll be sitting on the sideline until the FED decision, but I think there are two possibilities that could happen Wednesday afternoon. First, the XOP could spike back up toward 31 if the FED gives the market what it wants. If that happens, I’d probably be looking to get short against 31.50, but I’d be cautious and would definitely cut the trade quickly if it got anywhere near 31.50. If the FED disappoints the market, I’ll be watching the 29.60 level for a possible play long there against a stop of 29.40. If the XOP takes out both the 29.60 level and then closes that Tues-Wed gap at 29.40 from last week, then the long play is probably dead and we might be looking at 28.
The 28 level is the place where I’m most favorably looking to get involved and I think there is a good possibility that the 28 level does not hold on the next test, which would be the third test of that level. If it breaks down, I’ll immediately start watching for sharp breaks in a few of my favorite stocks for swing plays on the longer term. I haven’t been doing many swing plays, as the market is just too fairly valued in the current 30 range and there just isn’t much upside to getting in with the XOP in the 30 range. If you want to get long, either wait for the 31.50 break OR wait for the sub 28 pullback. Getting long anywhere between those two events is just gambling and trying to guess where the market is going. Don’t guess, just wait for the market to tell you what to do. The odds of success are much better that way.
I’m also watching the XLE and if I make a long play, I might do it there instead of the XOP. All of my short plays lately have been XOP because it has shown relative weakness to both the SPY and XLE. Always try to get short the weaker stock and get long the stronger stock. The XLE has definitely been the stronger index play as bigger money has been cautious and seems to prefer staying with the big caps and their stronger balance sheets
I’m not looking at any individual stock plays today. I’m more interested in trying to follow the overall market direction. A few individual names that I am watching are XOM at 80 and COP at 65. Both of those are kind of my first warnings for the XLE and XOP. If we get a big down day today, I’ll post on Thursday the stocks I’m watching for possible long swings if the market breaks down.
In the non-energy area, I’ve built up a decent position in APVO around 87 cents. There is something brewing on this one and they have some promising science. They also already have one drug that is income producing. The price is down on an offering, but that offering has been snapped up by some pretty interesting names, most notably Steve Cohen and Point72, as well as Jon Plexico at Stonepine Capital. Those are two pretty smart players who rarely make mistakes. I expect that a couple more interesting names will show up on 13G’s in the near future. The stock has some catalysts coming in the next six months and there are warrants at $1.30, so there’s a good opportunity for at least a 50% gain on this one. As with all microcaps, it’s very risky, so do your own due diligence on it. Also, scale in slowly and leave some room to add on the inevitable public shakeout that will happen just before they mark this one up.