Monday Review and Trade Plan for Tuesday, March 3
Mar 2, 2020 Trading Blog
What a close to trading on Monday. These late day runs are getting to be a habit for the SPY. On Friday, it ripped from 288 to 297 in the last 15 minutes and today it ran from 299 to 309 in the last hour. So, basically the entire move from 288 to 309 over the last two trading days has occurred at the end of the day, which is suspect. Who exactly is running this market up at the end of the day and why? That isn’t normal price action.
So tomorrow we have the big FED coordinated meeting and announcement. Feels like today’s late run was traders trying to get a jump on what will likely be a gap up and trend. Have they already priced this FED move in with Friday’s end of day run combined with today’s end of day run? That’s $20 in the SPY in two days on expectations that the FED is going to act. It’s definitely setting up to be a sell the news event. May the trading gods help them if they disappoint in any way.
I cut the XOM position today at 53.20. It looked like a good decision most of the day, until the last hour with XOM closing at 53.60. I’m still happy with the decision, I just have too much risk on right now in what is looking like a bad situation. It was only 1/4 of a position, so no harm really if I miss it. I’ve still got a 1/4 position in XLE and 1/4 in SLB, as well as the 3/4 position in XOP to catch any run up that develops.
The big question for me tomorrow is what do I do with this XOP trade that I have from 15.92. The E&P’s showed absolutely no momentum to run with the overall market. The SPY finished with one the biggest gains ever, yet the XOP finished red at 15.34. I think the market is definitely saying it may be time to trim out of this position on the FED bounce Tuesday/Wednesday. I’m going to be as patient as possible with it, but if it isn’t going to show some improvement, I might as well cut it and position the money either somewhere else or wait for another pullback in XOP. Sometimes you just have to admit when you are wrong and get out. Given everything that has happened since I started scaling in at 17, I’ve pretty much been wrong on this trade. Same theory for the XLE and SLB positions. I don’t make it a habit to try and move in and out of longer term trades, but sometimes it’s really obvious that the trade is broken. These should have run and they didn’t.
One problem I see is that WTI did bounce, but looking at that chart pattern, just how much more bounce is there? There is huge supply sitting about $3 away in that 50-51 area. It would be nice if price could break through that, but I don’t think that is going to be an easy level. If it stalls there again, then the E&P’s likely stall as well. The fact that XOP was red while SPY rose 3.6% and WTI jumped $3+ today may be telling me that the E&P’s don’t expect WTI to take out that 51 level. Things could definitely change tomorrow, but the message being sent right now by XOP is that of relative weakness and likely that oil is just getting a dead cat bounce, only to probably stall a short distance away. We will see what tomorrow brings.
Trading Plan for Tuesday – I’m watching 15.43 and 15.87 on the upside for the first signals on Tuesday. As I wrote in Saturday’s post, I’m expecting a bounce in XOP to at least the 16.50-17 area. So far it has topped out at 15.80. If it can’t even make a bounce to 16.50, then it probably visits 14 again soon. If the FED acts and the overall market runs on Tuesday and the XOP stalls again, then I’ll probably exit. This needs to show me something close to 16.50 on Tuesday to keep me in. I’d also be willing to give the trade a little more time due to the OPEC meeting that is scheduled for March 5-6. If price can stay in that 16 area, I might be willing to ride the trade for a few days more.
On the downside, price tested Friday’s VWAP twice today and held strongly each time. That 14.86 area should again be decent demand on Tuesday if things disappoint. The only significant level below that is 14.09.
I’m not interested in chasing any of these energy stocks if they do start running on Tuesday. I’ll simply hold the positions I have, but I won’t be adding. Price is too far off the bottom and the bounce may be close to running its course, especially given the the view on WTI that I set out above. Also, I’m not interested in shorting here either. OPEC still has some dry powder and they could offer up a surprise at their March 5-6 meeting.
It’s a really tough spot with energy stocks right now. I expected a capitulation move and didn’t really get what I was looking for. The overall market bounced hard, yet E&P’s didn’t. XOM looked good and I might revisit that trade, but overall energy was still weak. Sometimes things just don’t work out as planned. Best you can do is realize when you are wrong and correct the situation. I’ll be as patient as I can on Tuesday, but at some point I think these trades get cut at breakeven.
Good luck tomorrow.