E-mail Comment Digg Reddit Technorati

Weekly Energy Equities Review, Market Outlook and Trading Plan for May 11-15

The bulls keep running and the bears just keep beating their heads against the wall. My Twitter timeline just gets angrier each day as the bears continue screaming about how the real world fundamentals don’t match up with the stock market gains. They complain about how it’s all rigged and that the FED controls everything, and they are right. Yet they still refuse to truly accept the very things they are screaming about and get on the right side of the market and pick up all that free money. Eventually their complaining and whining could be proven correct, but they are giving up a lot of easy money for that intellectual ego boost. Trading is often a choice: Do you want to be right or do you want to make money?


Overall Market SPY IWM XLF

I love intellectual pursuits as much as the next guy, and I agree with much of what these bears are saying, but you have to trade the market you are given. Will all this manipulation and money printing lead to a deadly crash at some point? Probably. Everyone dies eventually. These bears are living their financial life in continuous fear of things that might happen. I see all these guys shorting and I wonder what exactly they are hoping to achieve by shorting SPY. Are they looking for a 10% crash? 15%? How many of those moves have we had over the last 12 years? Maybe one or two per year, if that. Say you wait for months and months to finally get your crash and you make 15%, so what? You just missed a 5% gain in five days this week if you would have just got on the right side of the market. These guys are betting on something that rarely ever happens and even if they are correct and time it perfectly, you really don’t even make that much when it finally does happen. Markets will go down at some point and I’m sure the trade is going to feel really good to the ego, but you will never make a consistent living trading like that. Find another area to get your intellectual kicks and ego gratification, because the market isn’t that area.


SPY started off the week testing the prior week’s range and rejected a move below that range on Monday morning and it continued to run to the upper boundary of the prior range by Friday, closing ~293. The high on this bounce is 294.88 and we should test that high water mark right out of the gate on Monday. This is one of those weeks where I really don’t have much of a feel for what might happen. My gut says the upward momentum continues, but I have to think a pullback might be coming, and it would be healthy. The important level on the downside will probably be last week’s VWAP around 287. If price can hold that on a pullback, then we should get another leg up. If 287 breaks, that likely opens it up to 278-280. Remember, we are going to get that pullback eventually and the bears will be taking victory laps, but don’t be so quick to short it thinking this is the “big one”. Pullbacks are healthy and clear the way for the next leg up. Be patient, let the pullback happen and find a safe place to ride the next leg up. Those bears shorting into the pullback are the fuel that will propel the market upward.


IWM had an even better week than SPY and managed to put up about a 9% gain from top to bottom this week. The most impressive part of that move was the multiple tests of the 125 area, which held solidly. It should take a look at the ~137 high this week and I wouldn’t be surprised to see a big gap up Monday morning. If markets are strong again this week, I could see IWM reaching the 141-144 level. If things turn downward, keep an eye on 127.75 and then the 125 level. The uptrend would be in danger if price takes out 122.50.


XLF was concerning this week. If the SPY is going to keep the momentum to the upside, the financials must get in gear and start moving up. The XLF basically closed the week right where it opened on Monday morning and was down about 2% for the week overall. I took a trade long in JPM at 91, but it fizzled out and really didn’t amount to much. I’ll be watching the 90-91 level again this week for another attempt at that trade. My second favorite financial is AXP. It’s coiling sideways and seems ready for a big breakout and I’ll probably be trading it as well this week. If financials break to the downside, I’ll start getting really cautious on the SPY uptrend.


GDX predicted that the financials might have been weak since it didn’t sell off as XLF moved up. GDX moved up steadily this past week as financials went nowhere. If the financials do break to the upside, then I’d get cautious on this GDX trend upward. The two groups will probably continue to move inverse of each other as the FED does its thing.


LQD and HYG had another week of moves that were hard to decipher and weren’t really tradable at all. LQD moved steadily down all week while the HYG moved steadily upward. I’m sure there is something I’m missing on these, but they just don’t seem to be moving in any logical pattern. The TLT added even more confusion with the big gap down on the open Wednesday, a big rip up after the FED and then a big gap down and selloff on Friday. I don’t have the required skill to know the underlying details on how these truly trade, but if there was a signal this week, I didn’t see it. To me, it just looks like a bunch of crosscurrents with multiple interpretations.


In summary, so many people make this market game more complicated than it really is. At the end of the day, there are only two variables: “X” (the amount of money) chasing “Y” (the amount of shares). All the things that the bears keep throwing around are merely inputs to calculate the value of X. There are multiple negative inputs for X right now, but the FED has cancelled them ALL out by increasing the value of X directly (printing dollars). While things like bad earnings reports or bad job numbers may make the amount of X (money) willing to chase Y (shares, constant) smaller, the FED just adds the lost value right back, plus some. And if the FED doesn’t do it through printing, then they can accomplish it through TINA. You can have all the negative inputs you want in the real world which may lower X, but if the FED chooses to manipulate the value of X higher, then stocks will continue to go up. Stop worrying about all the inputs to X, they are all just noise, and simply realize that X will keep growing because the FED is going to make sure of it.



I’ve been watching the pennant shaped consolidation that has been forming in XLE over the last eight days and it finally broke to the upside on Friday. The SPY and IWM breaking upward at the same time definitely helped. It would have been a better breakout if the volume would have been higher and price could have taken out the week’s highs, but it was still pretty good. The volume on the day was only about 25 million and about a third of that was in the last hour. The only concern I have is that it happened in the final couple hours on a Friday afternoon. I guess we will find out Monday if the breakout is real. If price can take out the 39.08 high, then it could work its way further into the gap from 42 that formed on March 9. If it fails at 39, then it will likely move down and test that 36-37 range which is becoming good support.


The important points to watch on Monday for XLE will be 38.25 (Friday’s VWAP), 37.75 (Friday’s low) and 37.00 (Last week’s VWAP). If those three points break, then we are probably looking at a pullback for the rest of the week, which wouldn’t be a terrible thing. The XLE is up almost 67% off the March lows and probably needs to pullback to around 31 to get rid of any sellers blocking the path.


XOM had a great day with a big gap up and grinding all day move which took it back above 46. I’ve been a little worried about XOM over the last couple of weeks, but it looks like it at least wants to test the 47-48 range again. It should find good demand at 44 next week if we get a pullback. The next levels down are 42.50 and 39. CVX was again the stronger major this week and managed to close at a new high at 95.50, which broke the 95 level which was tested a couple times over the last two weeks. If CVX can pullback and test 95 early Monday, then it could make a move toward 100, which is amazing considering the March low was ~50. The downside support for CVX comes in around 92.50 and 90.


WTI made most of its move on Monday and Tuesday and then went flat for the remainder of the week. It was nice to see it go up for a change. I’m expecting more sideways movement this week for WTI. I hardly ever trade oil, but if it dropped back to 20 I’d have to consider giving it a try on the long side there. The first pullback in oil over the next few weeks is going to tell us a lot.


One old friend that I haven’t mentioned in weeks could be returning to my trading screen, and that’s XOP. It’s still heavily weighted toward natural gas names and refiners, but the weighting may level out soon. As the oil E&P’s continue to rise while the natural gas names trade sideways, the portion of the ETF representing oil E&P’s is growing. At some point, the oil names may once again start rising to the top of the XOP holdings in weighting percentage. Also, now that the natural gas names have had a chance to consolidate their big move up, both oil and natural gas E&P’s could be getting ready to move up together, which would probably make XOP a rocket. As a daytrader, I need price range during the day and the XOP at 54.00+ definitely provides that needed daytrading range. This thing would be a daytrader’s dream if it got back above 75. While I don’t think it truly represents the sector, it does make for a preferred daytrading vehicle with decent correlation to the sector.


The technicals on XOP are very well defined. There’s solid demand at 50 and supply at 55.50. That kind of defined trading range provides some great trading setups. There seems to be a point of control developing around 52, so I’ll be watching that area on Monday. Surprisingly, XOP has already closed that March 9 gap. If I can get in sync with the natural gas names and refiners, I’ll start posting some trading setups on XOP.


The service names made good moves this week with SLB, HAL, BKR and NOV all moving close to their highs of this seven week rally. If these stocks take out the highs and get into that March 9 gap, there could be some great trades on the long side. I’m probably not buying the actual breakout, but I’ll definitely be watching for that first pullback to test the breakout point from above.


The refiners continue to be a bit of a tease. I really thought they would be the first group to break to new highs, but they seem to be stalling out on this rally. VLO, PSX and MPC all had big days on Friday, so let’s see if they can breakout this week. My opinion on the refiners is a little different from the services names, as I’d be willing to give the refiners a long attempt on the breakout. Once these names start moving, they rarely give you a second chance. HFC and PBF didn’t look quite as good as the others, but I really like that 9.00 area in PBF to try a long if it pulls back.


I’ve been avoiding the natural gas names over the last several weeks after they had that big run off the bottom, but now that they have had the chance to consolidate for awhile, they might be worth a shot. I’m still not crazy about the group, but there is a solid level in COG and EQT which allows for long trades with a very fixed risk. I’m not interested in RRC, AR or SWN. These natural gas names will not be high on my list next week, but at least they are on the list again.


Hopefully you guys stayed away from the shipping and tankers last week. That group got hit hard as the early buyers started to head for the door. FRO and NAT were both down 20%+ high to low. Like I said in last week’s writeup, you don’t want to be the guy cashing the early buyers out and left holding the bag. Continue to avoid the shipping sector.


The other group I warned about last week also got hit pretty hard, including WLL, OAS, CPE, XOG and CDEV. I think they all finished red for the week. Daytraders got ahold of these last week and they are now bailing out. Most daytrading rooms don’t hit groups consecutively, so it could be awhile before they return. The slowest daytraders who got left holding the bag will probably continue to dump these names, as reality sets in that they were late to the daytrading party. These things are trash, continue to avoid them.


This Week’s Trading Plan – I’m a little cautious this week that the market may finally make that much needed pullback, but I’m going to keep trading the upward trend until it shows me otherwise. I’ve got two plans for XLE. If the market gaps up, I’ll be watching to see how price handles the 39 area. Price will either consolidate around there for a few bars and then take off to the upside or it will find big supply up there and get quickly rejected. I have no desire to short XLE, so that only leaves a long trade on the table. Technically, I’d like to see an open around 39 and then have price fade back to Friday’s high around 38.80 for a test and possibly entry. Once price holds Friday’s high and then takes out 39.08, I can then size up on the trade and see how far it can run. If price fails up at 39.08 on that run, then it has to be stopped out around 38.50. Do not get stubborn if that high fails because it could come down very quickly on an obvious failure.


The more difficult trade would be a gap down open on Monday. Price broke from the 38.20 area, so that’s the point I’d be looking at if the initial move Monday is down. Get long 38.20 and put the stop just under Friday’s low of 37.74. If that trade fails, then I’m back to the sideline because obviously the sector is weak or some type of news has occurred. I’d then start watching 37 to see how it handles last week’s VWAP before I got involved again.


My next trade is CVX. I’m looking for a flat open Monday and then for price to drift back down and test the 95 area. If it looks like it’s going to hold on a lower timeframe, then get long and use 94 as the stop. If CVX is strong, it could hit 100 this week, so the trade offers a solid 5:1 payoff.


I’m also looking for a similar trade in COP. It has tested the 43.25-43.50 area five times over the last couple weeks and could be getting ready to break out. It’s a more difficult trade than CVX because it’s going to require a larger stop. It’s probably going to require a 41.75 stop, so you have to get a really good entry to make the reward worthwhile. I’ll probably take the CVX trade instead, but if CVX has already gapped out then I’ll look immediately to COP. I’d also throw PXD into this same trade setup.


The last energy trade plan is in MPC and VLO. The setup in both stocks is very similar, with VLO being the preferred choice. I’m looking for a flat open on Monday and then just try to get the best entry possible, preferably something around 65.50. I’m strictly looking for a quick breakout and run. I’ll give the entry about a dollar to work and then I’d probably be out. This is a very loose trade and the plan just doesn’t have much structure to it. Bottom line is that I just want to get in as safely as possible and hope it just rips to the upside. If the move isn’t there, then just get out.


I’m still watching JPM and would like to give it another long play this week in the 90-91 area. Put a stop on it around 89.50. I’m also watching WFC in the financial sector. It has made an attractive Wyckoff accumulation pattern and I’ll be watching to see if last week’s action was a spring. If the financials show any strength, I’ll be looking to get long around 25.50-25.75 with a stop under last week’s low. Ideally, I’d like to see it gap down open Monday and enter on a reclaim of Friday’s 25.23 low and put the stop below 25. The only other financial that I’m interested in is MA. It’s not totally a financial, but does move with the group. I’m looking for a break of the 283-285 area for a long attempt. Use 282 as the stop.


MGM is still on the radar, but I’d like to see it pullback somewhere in the 14-14.50 area for a long attempt. This is more of a longer term trade and a scale in approach. I had my eye on PENN, but that one kind of got away from me after earnings. I’d be willing to give it a try under 15, but I doubt it pulls back that far.


That’s really all I have for Monday. I expect that I’ll have a lot more information after Monday’s action and a much better trade plan for Tuesday. It should be a green week, but all these crying bears will eventually get their pullback so size positions appropriately and use stops. That one winning trade the bears have been waiting months for will eventually come, but for the bulls it will just end up being a small stopped out loser. And then we move on to the next day.



Comments are closed.