Trade Plan for the Week of May 13

I haven’t been following the energy sector as closely as usual over the last couple of weeks simply because the trading range has been so small that the opportunities just aren’t there for me. The XOP has moved for the first 30-60 minutes most days and then just nothing for the last 5-6 hours. However, this week could offer a great longer term trade and possibly some good trending action for daytrading scalps.

 

I’m still bearish on the XOP overall and I’m looking for a longer term SHORT trade this week. The E&P’s have been stuck in the 29-30 range for the last 7 trading days. If you look at the past, this ETF has a history of doing this within a strong trend, and it is usually a continuation pattern.

 

There is a huge demand level in the 28-28.50 area and I think the market will test that area soon. I have no idea if it will hold, but my gut says it probably won’t and we may be looking at a free fall to 24. On the other side of the coin, if it does drop down and test that 28 range, I don’t think the bounce will be sharp with a 7 day range of supply sitting just overhead, which should allow plenty of time to get out of a short trade safely. It is one of those situations where the odds of breaking down are much less than 50%, but the payoff on the trade is probably 5:1 if it does.

 

So how to play it? I think this moves up before it goes down. I’m looking for an early week run up to test the upper side of this 7 day range. If that happens, I’ll be looking for a defined failure pattern up around 30.25-30.50. If price gets above 31, then I’m probably wrong on this trade and I’ll be way more cautious about trying a short up there. Any short up around 31 would have to be an almost perfect pattern with a concrete tight stop.

 

If there is a failure pattern, start scaling in on the pattern in the 30.25 area and then add heavily as price comes back into the 7 day range around 29.90. When price gets back in the range, it should move to the opposite side of the range at 29 pretty quickly. There is always an option to pile more size into the trade on a break of 29 for a very large sized overall trade with a target of 24. If 29 breaks, then bring the initial stop down toward the top of the range around 30.25, if price has enough strength to bounce at 29 all the way back across the range, then this isn’t as weak as expected and I’d probably cut the trade and see how it reacts to another test of the upper side of the range. The trade can always be done a second time.

 

One thing I’m NOT looking to do is start the trade on an early week break of 29. If the trade moves straight to that point Monday morning then I’m not interested in this trade. That kind of action could be a test of the bottom of the range and any failure would probably lead to a very sharp bounce that I just don’t want to get caught in. I’m looking for the upside test and failure first, not a downside test and failure first. Everyone sees the demand at 29 and the novice shorts are going to hit that and it’s about 90% likely that any run to that level early in the week is a stop hunt and a trap if it occurs before a test of the top of the range. Don’t get trapped with the anxious retail traders. If price does run to the bottom of the range and breaks through, then I’ll just miss the trade, that’s fine. There will be another opportunity to enter when this makes a timid bounce off the 28 level back toward the breakout point at 29 for a short setup.

 

Much of this depends on what happens with SPY and WTI. The overall market put in a bit of a bounce late last week and I think there might be an early week attempt at an up move, but I’m not sure how much strength is left in this market and if there are enough buyers still around to push this higher. The 290-291 area is big. A move up and test with a failure in the SPY would coincide nicely with a move up and test failure in the XOP. One other thing to watch is XOM, it is sitting right on support at 76. It has been in this rough 76-84 range since early 2017 and what it does here could be an early signal for the entire sector. If it drops below 74, that’s a huge warning.

 

If the XOP does trend down, I’ll be looking to pick up a few names when it hits the bottom. I like OXY and if it gets caught up with the rest of the market in a downdraft it could turn into a real bargain under 50. My second favorite name on a pullback is HAL. This one has been absolutely crushed since earnings day up around 32. I’m also watching MPC in the refining sector as it gets close to testing that 50 level.

 

I’m still a fan of the smaller Permian names, but they just won’t come down to an attractive entry point, which I guess is a good signal that everyone else likes them too. PE, MTDR, JAG, CDEV are all still on my radar. PXD, CXO and FANG are also on there, but I like the smaller names better than the larger ones.

A few secondary names on my list are CLR, CLB, PBF, PES, GIFI.

Good luck out there this week. I’m off to finish the weekend with a couple good bottles of Nebbiolo Rose’, a Sunday afternoon nap and ending with watching Billions tonight. That’s a good day right there.

 

 

Trading Plan for Monday, April 8, 2019

This past week was difficult for me, as my overall bias for the E&P’s was bearish, which is exactly opposite of the action toward the end of the week. I didn’t think they would break out past 31.55 so easily and I missed the move. I think the most aggravating part of the week was when I got long after Wednesday’s EIA number, but got shaken out only to see the sector rip up Thursday and Friday. The EIA number was terrible with a huge build, yet the initial reaction was a rise in price.  Someone was using the bad EIA number to load up and once they were full, price drifted down for the rest of the day and shook the weak holders (ME!) out. I saw the positive signal, I just didn’t have enough faith to hold through the pullback.

 

The energy sector has been diverging from the overall market so severely that I’m not sure if this is a true breakout or simply the energy sector just catching up with the rest of the market. Either way, the E&P’s are going up. My bias is bearish, but it’s just foolish to fight such an obvious uptrend. If I see a breakdown, I might try a short, but it would have to be perfect and very risk controlled. The long side is the correct side this week.

 

Trading Plan for Monday: The plan for this week is simple, find a comfortable place to get long and just sit tight for the week. I do a lot of shorter term trading, but this week isn’t one of those times where it pays to be in and out so often. A trend seems to be starting, so just get a solid entry long and ride it out until the sellers show up. I like the XOP this week, but I’m also going to place some money on the XLE. I’d really like to see a slight pullback to test the 31.44-31.62 area for an entry long. Anything I could get lower than 31.44 would be a bonus. I’ll probably start scaling in as it dips under 31.50 and save some ammo for any dip near 31, although I don’t think it dips that far this week. On the upside, there doesn’t seem to be much supply between 31.50 and 34. Once price hits the 34 level there should be some supply that it will need to absorb for a few days. If it can chew that up, it could make a move toward the 200 ma ~36.

 

The only problem this week with getting long is that I’m really not sure where I’m wrong. I think the first warning would be Friday’s VWAP at 31.54. If that broke then Friday’s low of 30.88 would be a huge red flag that my long trade is wrong and I’d probably be forced to cut it. The 50 day moving average is down at 30.22, but I don’t think I’d wait that long to get out. The 30.88-31.00 area probably says the long trade is wrong and would stop me out. If this market is truly strong and breaking out, then price just shouldn’t pull back that far.

 

I usually don’t play individual stocks in a situation like this, but COP is definitely a play for me this week. The reason for the interest in COP is the concrete stop at 65. If that point fails, I know I’m wrong and can cut the position without any hesitation. The upside on this one is probably 70. If I can get in around 66, that’s a $1 risk for a $4 return, which I’ll take any day.

 

My only concern with energy this week is if it opens with a gap up or a strong opening drive and fails. We have been in this range since early January and all clues point to this being a re-accumulation (actually an accumulation which was distorted by the sharp drop at Christmas). The concern is if this range was actually a distribution and we now see an upthrust at the end of this range which leads to another leg down. Friday’s action would have probably shown that clearly and it didn’t, which makes me feel better about the long side. It’s just something to watch out for. If we get through Monday with a solid green day, then it should be clear sailing for the rest of the week.

 

There’s also the chance that the SPY tops out this week around 294 for a BIG double top. I don’t think the odds of this happening are very high, but it is a possibility to watch out for. My guess is the market runs up to the 294 level early in the week and then spends a good bit of time forming a handle type pattern and consolidating around the highs for at least one more try at a breakout higher. This market could easily hit 300 and once the meltup and FOMO kick in, there’s really no telling how far this market could go. The worry I have with this is that it could morph into a blowoff top which then becomes the head of a HUGE head and shoulders type formation. But that’s probably a long way down the road. Just enjoy the bullish environment for now and ride that trend until there’s a clear signal to abandon ship.

 

Trading Plan for Thursday, April 4, 2019

The energy sector had its first significant down day in awhile with the XOP dropping 2.3% and the XLE down 1%. The question now is, was this just a normal pullback day or the start of something more serious?

 

The concern for me is the increasing relative weakness and continuous divergence of the energy stocks from the overall market. On a day where things looked so bad for energy stocks, the SPY was still green. It was the same story on Tuesday when the XOP was down about 1% and the SPY again was green. Are energy stocks flashing an early signal for the overall market? Is the threat of a slowing economy showing in one of the most economically sensitive sectors of the market?

 

At this point, I’m going to say that Tuesday and Wednesday were just a normal pullback within the range we have been in since mid-January. Another day or two of decline though would change my mind. The decision point for me in the XOP is 29.61. If this is truly just a move back down to the bottom of the range, then price should stop and bounce there. If this is something more serious, then price will break that level and then move to 28 for another decision there.

 

The problem for energy is what happens if the SPY finally rolls over and makes a significant pullback? Given the run since Christmas, a pullback has to be expected soon. The energy sector is showing weakness with a strong SPY and if the overall market rolls over, things could get really ugly for energy. The same logic applies to oil itself. The SPY/WTI correlation has been fairly high and those charts look very similar. WTI hit 63 and the underlying energy stocks still rolled over with oil up there. If the SPY AND WTI both roll over, there’s almost no way the XOP survives that. It seems the fate of the E&P’s right now rests more with the action in the SPY and WTI than with their own fundamental condition.

A secondary watch is the TLT and the test it is making at the 123 level. If that level holds and the TLT starts running up again, the XLF should roll over and could take the SPY with it.

 

XOM and CVX are still above the 50 and 200 day moving averages and staying above those levels will be a big clue for future sector direction. If the leaders crack, the others will follow. For the E&P’s, many of them broke down below their 50 day moving averages Wednesday. EOG, OXY, APC, CXO, APA, FANG, PE, MTDR, JAG, MUR, RRC, SM, WLL all broke the 50ma on the same day and that’s a pretty powerful signal. I also posted the COP chart yesterday showing the 65 level as a significant signal point, so watch the 65 level today for E&P directional clues. Several of the services names are also sitting right on the 50ma. SLB broke it Wednesday, HAL tested it and failed, NOV has been below for awhile. The OIH should test the 50ma today. Refiners show the same pattern with MPC and HFC already below, PSX rejecting the 50ma on Wednesday and VLO sitting right on it for a test today. The key for Thursday will be if all these stocks can fight and regain the 50ma or if they just collapse and move away from the 50ma quickly and easily on heavy volume with funds throwing in the towel.

 

So how to play it today for a trade? This is either going to bounce today or it isn’t. I’m watching Wednesday’s low of 29.99 and the 50ma at 30.17 for clues. The sector found some difficult resistance around the 50ma area for the last couple hours on Wednesday and that level will be important today, either as support if price can get above or resistance if it fails to get above. If price can get back above the 30.17 level, the next area of supply will be at Wednesday’s VWAP of 30.48. If the market can clear that level, then a full on bounce and recovery could very well take hold and a move back to 31 is possible.

 

However, if 30.17 fails and price breaks below 29.99 I think this easily moves to 29.61 for a test of the bottom of the range. There will be a big fight there and it could bounce a few times. If it ultimately fails, price should move to 28 very quickly. The next signal around 28 will likely take a few days to play out.

 

Thursday’s Trade:  It’s 6:30ET right now and the market isn’t showing any direction. Depending on where this opens, I’m looking to set up a short play off the 30.17 area and will use Wednesday’s VWAP around 30.48 as my stop. I’d really like to get short somewhere in the 30.20-30.30 range for a breakdown to 29.61 with the possibility of the home run to 28. The stop on that play is about 25 cents and the reward is likely about 75 cents, but could be as much as $2.00. If this market gaps down and I still wanted to put on a short trade, I’d probably use the same logic to get short using 30 as my entry point and 30.17 as my stop area. I don’t like this setup nearly as much, but it’s really only way to get short on a gap down with any risk control.

The only place that I would be looking to try a long trade today is around the 29.61 level. While the XOP could open strong, there is just too much supply over the market right now to trade freely to the upside. I’m not saying it can’t run up, but simply the odds on that trade just aren’t very good. The better play long would be to let the action play out around 29.61 and hope the bottom of the range holds for a run back to fair value in the middle of the range or maybe even a run back to the top of the range.

Trading Plan for Monday, April 1, 2019

Last week was one of the slowest trading weeks I’ve had this year, just a continuous tight range between 30-31. There have been a few opportunities within the range, but I’ve just resigned myself to waiting for the either the breakout at 31.50 or the test at 29.61. Anything in between is just going to get chopped up.

 

I think the biggest reason for the slow week is that my bias is bearish, however the XOP is showing bullish characteristics. When the two don’t mesh, hesitation creeps into my trading and I get too cautious, especially with scalp type trades within the range. When there is no clear direction, sometimes it’s best to retreat to the sideline and wait to enter when the market reaches points of interest that mean something and convey a more certain direction.

 

This week is going to be a difficult one, as there are so many different ways the XOP could go. Top 5 paths from the decision tree:

1.  A positive open on Monday and a rip straight to the top of the range at 31.50.

2.  A dip to 29.61 and then a run at 31.50

3.  A dip to 29.61, a failure, a run at 28 and a failure there to 24

4.  A dip to 29.61, a failure, a run at 28 and a big bounce which fails at 29.61 and collapses

5.  A dip to 29.61, a failure, a run at 28 and a big bounce which breaks back above 29.61 and then makes a run at 31.50.

 

I know that sounds like a lot of options, but it helps to try and stay one (or five) steps ahead of the market so you know how to react to whatever is presented. One thing I don’t want to see is a gap up open to 31.50 (or a sharp opening drive there) which gets clearly rejected. If that happens early Monday, the rest of the week could be straight downhill. I’m bearish in my view right now, but I don’t see a short on that kind of action being very profitable. If this market does breakout, it could run so quickly that executing a tight stop on a short could be impossible. While a short might be likely and profitable, it would be brutal if the squeeze happened on a breakout.

 

My ideal trade for Monday is a pullback to the 29.61 level and then a run at 31.50 for a possible breakout (path 2). The most useless path would be more consolidation in this 30-31 range. If the XOP continues to consolidate, I’ll be on the sidelines.

I’ll try to post daily plans this week if things are moving. I didn’t really post much last week because there really wasn’t much to say given that tight range.

 

 

Trading Plan and Overall Market Outlook for Monday, March 25, 2019

What an ugly day on Friday. The question now is whether this was just a temporary pullback or the start of something serious. It’s probably too early to tell, but by the end of this coming week the answer should be pretty clear.

 

The real key to watch here is the TLT. I posted a chart a couple of weeks ago saying watch that 123 level, which has been an important market level since mid 2017. The market gapped up to 124 and closed the day at 124.86. That is a huge move taking out an almost 2 year resistance level with absolute ease. You can’t ignore the significance. If you want to know why the stock market dropped, that’s the answer. Lower rates should have fueled this market to new highs, yet it didn’t. The key here is WHY rates are dropping. The severity of the gap in TLT combined with the drop in the SPY clearly shows concern that the economy is slowing and recession could be approaching, and that’s likely the ‘WHY’ supporting the FED’s dovish move.

 

Sitting here looking at charts this morning and the most concerning group of stocks to me is the drop in the Financials since the FED announcement on Wednesday. JPM ran right into the 200 day moving average at 108 and has moved straight down closing at 99.76 on Friday. I just don’t see how the market is going to move up without the financials. The problem obviously is the expected lower rates, which aren’t much help to bank profits. The underlying question though still remains: Why are rates going down and what really caused the FED to take a very drastic and somewhat absurd move of lowering rates into a stock market that was headed to all time highs? On the face, their conduct doesn’t make sense, but if you dig deeper and consider that they most likely see a recession coming, then their conduct starts to make A LOT more sense.

 

No central bank should ever be lowering rates into a stock market approaching all time highs. It’s just a waste of ammunition and there’s no reason to do it, other than to manipulate and blow a bigger bubble. Unfortunately, I think they are caught between a somewhat manipulated stock market and an underlying economy that is going the other way. The market and the economy have clearly diverged and have been for a couple years. I think it’s possible that the FED has been forced to shift their position to protecting against the slowing economy, at the risk of blowing a bigger stock market bubble. They simply have no choice at this point. If that’s the real reason, then the move of lowering rates in the face of an all time high stock market doesn’t look quite as absurd.

 

The second most concerning group of stocks are the commodity stocks, things like X, AA, FCX, CLF, etc. When rates drop, these component stocks of the XME usually respond by going up, and they did on Wednesday and Thursday, but Friday they got crushed. This is a clue about the ‘why’  rates are dropping (TLT rising). When these commodity stocks drop on lower rates, it’s because the economy is slowing and I think these commodity stocks offer a real clue as to why the market fell on Friday in the face of a very dovish FED.  These commodity stocks are more supply/demand driven than other types of stocks. A slowing economy can shift the supply/demand dynamic quickly. The market should have run on lower rates, yet it didn’t.

 

Utilities are another group offering clues. They moved up on lower rate expectations as they normally do, but the move in the XLU was to all time highs on the weekly chart. That’s not just a rate move, that’s more than likely a flight to safety and dividend preference move. When investors would rather buy Utilities instead of bonds or tech, that’s a red flag. The Consumer Staples operate on a similar theme, but not quite as purely as utilities. The XLP held up well Friday, closing down just 7 cents, although it is looking toppy on the weekly chart. But when you compare Utilities/Staples to Financials/Tech, the market is sending a signal.

 

Which brings us to the oil sector. If this TLT/SPY correlation on Friday is for real and is on concerns of a slowing economy, energy stocks are going to get absolutely crushed over the next couple months. Oil stocks moved in line with commodity stocks on Wednesday/Thursday, and then followed them down Friday. If the economy slows, the supply/demand characteristics of commodity and oil stocks will show quickly. Oil has already been dealing with supply issues and if the demand side of the equation starts to also become an issue because of a slowing economy, there’s probably nothing that OPEC, nor anyone else, can do stop the coming price collapse.

 

If the slowing economy theme starts to pick up speed, oil could quickly find itself back in the 40’s and I really don’t think any of the E&P’s could survive that drop in their current condition. They are already struggling with WTI almost 60 and I’d hate to see the carnage at WTI 40.

 

So what to watch this week? I posted this week’s Decision Tree on Twitter (on the right side of the blog). I think the most important watch is the TLT to see if it pulls back to the 123 level and if it holds that breakout point on a retest. If it doesn’t even bother to pull back for a retest of 123, that’s going to be an even clearer signal of the danger in the stock market. Next, keep an eye on the financials to see how they respond to the TLT action and whether they can diverge from the current TLT up / XLF down correlation. Another watch is the DXY to see if it picks up strength or if it just moves sideways. With the dovish FED and lower rates, it should be weakening, but it really isn’t.

 

So how to trade energy this week? I think the best trade opportunity is going to be on the short side. The XOP should try to bounce early in the week, along with the SPY. At some point, the market could fail again and that’s going to be the short entry for the XOP. I’d stick to the XOP rather than the XLE if shorting is the plan. The XLE should be able to weather the collapse better with XOM and CVX sometimes being stocks that money flows to for safety. It doesn’t always happen, but I’ve seen it happen before. No sense in trying to short them when the XOP is a much softer target.

 

As for exact levels on the XOP, I’m really not sure how far it could bounce Monday. The E&P’s closed at 30.05. The 50 day moving average is 30.18, 20 day moving average at 29.98 and 8 day moving average at 30.37. The 30.50-30.65 level is the first supply and 31.00 is the second supply. If this market is truly weak, it shouldn’t be able to take out 31.

 

On the downside, the level for me is 29.61. That has been a solid demand level since early January. If that breaks, then 28 is obviously the next demand level. If the 28 level breaks, then things will get really ugly, really quickly and 24 could be the result.

 

From the Decision Tree (posted on Twitter Feed), the four most likely XOP paths this week:

1. Total breakdown. 29.61 breaks without much resistance and then the market makes a run at 28 and also breaks that level.

2. Market breaks down below the 29.61 level, drops to 28 and then bounces back to 29.61 for a test of that level.

3. On the retest from below, the market breaks back above 29.61 for a run back toward 31.

4. On the retest from below, the market fails at 29.61 and heads back down to 28 for a fourth test of that level, at which point it probably breaks down.

 

Two paths that could occur but I don’t see as likely:

A. The market tests 29.61, holds and then rips right back to the top of the range at 31.50.

B. The market simply drifts sideways in the 29.50-30.50 range all week.

 

That got longer than I intended. I’m off to have a couple bottles of good wine in the warm sun this afternoon, hope you guys have a great Sunday.

Trading Plan for Thursday, March 21, 2019

A huge EIA draw and an incredibly dovish FED really pumped up the energy sector on Wednesday, but given the magnitude of those events, the move should have been larger. Those two forces probably should have pushed XOP out the top at 31.60, but the market gave up the gains and finished at 31.03, which is barely above Tuesday’s high. The difference in Tuesday and Wednesday should have been much greater considering the news available on Wednesday, versus what we had on Tuesday. So many people focus on just the news and they forget to observe the reaction of the market to that news. When the reaction doesn’t match the news, that’s a useful signal. Let’s see if the hesitation at the top of the range follows through into Thursday.

 

SPY – The overall market still finished the day in the red, even with the dovish FED giving the market everything it wanted. That’s not an encouraging sign. The SPY was sitting around 281.15 at the time of the announcement and finished the day at 281.53, after reaching a high of 283.50 on the announcement. This wasn’t even close to Tuesday’s high point of 284.36 and that $2 roll back from the highs probably shouldn’t have occurred and might be a signal that the market has run out of steam. In fact, the SPY barely closed inside Tuesday’s low of 281.41 by 14 cents. It’s possible that many were expecting this move from the FED and the announcement functioned as a sell the news event. The only way to know for sure is to observe the action on Thursday. Bottom line here is that the SPY should have held those gains and probably finished at a new high after that FED announcement, yet it didn’t, and that’s a red flag.

 

XOP – It’s the same story with energy, more so with XLE than with XOP. The EIA draw was huge and combined with the dovish FED (especially the Dollar reaction) the energy market should have made new highs and held those highs, but it didn’t. XLE made a new high at 67.42, but tumbled back inside Tuesday’s range. The XOP made a new high by 6 cents and barely managed to hold above Tuesday’s range. I gave the XOP a shot short at 30.97, but cut the trade at 31.01 for a small loss. The entry was too early, I should have waited for the FED announcement to filter through a little more and tried to get an entry closer to the top of the range around 31.50. The better short would probably have been the XLE because the EIA number affected the E&P’s way more than the larger cap names. Most of the small cap E&P names that make up the XOP really got a bounce on that EIA draw. I should have considered this and moved to the XLE for a short and that was my mistake.

 

The true health of the XOP will show on Thursday. If there is real strength here, this market should easily take out Wednesday’s highs of 31.43 and then close well above that level. Any failure at Wednesday’s high is a huge red flag and the warning gets more serious if the XOP can’t hold above Wednesday’s range. The further down in Wednesday’s range that the XOP closes, the larger signal of weakness that would be for me. There should be solid support down at Wednesday’s low of 30.05 with the round 30 level and the 50 day ma sitting at 30.16 and the 20 day ma at 29.99. I feel fairly certain that the XOP will hold 30, but would also be concerned if it got anywhere near that area.

 

If there truly is strength in the XOP, it shouldn’t dip much below 30.80 on Thursday morning. After a quick test there, it should easily take out the highs at 31.43 and then challenge the 31.60 level for a breakout of the Jan-March highs. I’m going to consider it a disappointment if the market doesn’t make that move today, as it has great EIA numbers and an incredibly dovish rate and dollar environment to work with. If this information can’t push the XOP out the top of the range, then I’m not sure what could, as it doesn’t get much better than this for oil and the E&P’s.

 

So given that outlook, how to trade it? I’m looking for a pullback under 31, preferably close to 30.80 to get long for a run at Wednesday’s highs. That’s my ideal trade. Most likely though, the XOP is going to open with a gap up, which makes a more difficult play. If it gaps close to the highs, I’ll probably let it break out and then hope it drifts back down and retest Wednesday’s range at the 31.43 level, where a long trade should set up. Not my preferred type of trade, but if I want to catch a breakout run toward 32, that’s going to be the safest way to do it. So, two choices basically 1) let it pullback close to Wednesday’s VWAP in the 30.85 area and get long OR 2) let it go ahead and show the breakout strength and then let it pullback to the breakout point for a long. Anything in between those two options is simply guessing and will likely chop you up if this ends up consolidating all day.

 

On the short side, I’d probably wait for a clear failure signal before getting short. If the market puts in a clear failure at Wednesday’s high of 31.43, I’d probably try a short using that point (or today’s intraday high) as my stop. Pulling back and looking at a chart from early December until current, we are clearly sitting at the top of the range and any failure is going to send us back into that range, possibly to the opposite side of that range. I’m probably leaning about 65% long and 35% short on today’s trade possibilities. It’s going to take a very clear signal to send this market down and if we don’t get it, the natural flow and inertia might keep pushing the market higher.

 

The only individual stocks I have an eye on today are XOM and CVX. They absolutely did not participate in Wednesday’s strength and CVX even somehow managed to finish in the red, down about -.5%. If these two aren’t going to run, then the XLE isn’t going anywhere. COP was also a bit of a concern finishing the day barely green at +.3%. Also, the refiners were a weakness with MPC finishing barely green at +.3%, PSX -.7%  and VLO almost unchanged. The refining portion of the sector was definitely hurting Exxon and Chevron. Keep an eye on the refining subsector today to see if it can bounce back and carry XOM and CVX with it.

On the macro level outside of energy, keep an eye on the 123 level in the TLT.  Watch the XLF to see if it bounces back today in the face of lower rates. Also, keep an eye on gold to see if money wants to keep moving to commodities. Watch the EURO to see if it can hold the 1.1335 level. If the EURO starts failing again, that could take gold and oil back down with it.

APVO – Big volume on this small biotech and another couple of 13G’s filed on Wednesday. This one is looking more interesting by the day. Long at .87 and will be looking to add on any dip below .80.

Trading Plan for Wednesday, March 20, 2019

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.

 

Trading Plan for Monday, March 18, 2019

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.

 

 

Trading Plan for Friday, March 15, 2019

Thursday ended up being a real dud. It was simply a day of indecision as the SPY put in an inside day with a very small range of just $1.17. While most will probably view it as a meaningless day, I think it probably shows more favorably for the bulls than it does for the bears. The market was setup coming into Thursday to possibly produce a rejection of the upper range, however it held it’s ground and avoided the rejection, which says something about the power of each side. If I was forced to predict, I’d say this market likely breaks out the top of the Wed/Thursday Parent candle. That doesn’t mean I would play it that way though, as the odds just don’t make a Friday long play there profitable in my opinion.

 

SPY – The levels for the overall market are well defined. The two topside levels are 281.84 and 282.38, while the downside levels are 280.67 and 280.30. The trade setup is to observe the first direction today and see how it reacts at the first levels, then see if it rejects and heads to the other side of the range and levels. The preferred trade for me is to let the market come down early and test the two lower levels and find a spot to get long off them for a reversal and move to the upper levels and possibly a breakout from the inside day pattern.

 

Oil – Oil showed overnight strength, almost touching 59. At some point, the price has to kickstart the E&P’s. Many of those guys are making decent cash at $60 oil, which is quite a difference from the low 50’s price when most of them reported earnings. Gold and gold miners are green as of 7am ET this morning and the EURO is also green. Rig count at 1pm ET.

 

XLE – The chart pattern here is a bit shaky as price has run for the last four days and put in a bit of a shooting star type candle on Thursday, which suggests this could reverse some of the week’s gains. The point to watch for Friday is 65.97. Price needs to establish above Thursday’s range, but at least no worse than staying within Thursday’s range. If price breaks down into Wednesday’s range, it could stick there most of the day. On the upside, watch 66.38 and 66.85/66.93. XOM and CVX both put in red days Thursday and the CVX chart pattern looks especially cautious and could be looking to retest the 119 level. Services stocks SLB and HAL also show similar patterns, with SLB showing failure right at the 50 day ma.

 

XOP – The E&P’s are barely clinging on to the 50 day moving average which is sitting at 30. The 20 day ma is at 30.09 and the 8 day ma is down at 29.37. My plan this week had the XOP reversing yesterday at the 30 mark, but it mostly just stalled out and consolidated rather than reversing. It will be important for the XOP to hold Thursdays range and stay above the round number at 30. If it breaks below 30 on significant volume, then I think we could possibly start the move back down for a retest of 28. I’m cautious about shorting today, as this market has been stronger than my plan. On the upside, I’m still watching the 30.35 level and I’d probably take a shot long with some size if we took that level out on good volume. More than likely, we get a sideways consolidation day Friday, which is really going to be boring.

COP was the most worrisome E&P yesterday. It has barely been hanging on to the 65 level this year and it faded badly Thursday putting in an ugly reversal candle right on the 50 day moving average. Watch this one as a leader, there is a good chance it approaches the 65 level again soon.

 

Individual Trade Setups:

HES – I mentioned this one earlier in the week as a short setup against the 60 level and it is still showing a good setup. It could likely be played short against Thursday’s high, with the added bonus of some protection around 60 which is where the 200 day ma sits. Be careful on this one though, if it does cross that 60 level, it could rip to 70 in no time, keep the stop tight. WLL and FANG show similar short setups against Thursday’s highs.

APA – Apache just keeps ripping higher and is the E&P with the most upside momentum to be played long after a pullback, which could be coming soon.

HAL – I’m still waiting on Halliburton to make a run down toward 25 for a long attempt. It bounced a little this week, but has been an underperformer.

NOV – Another service name I’d like to own near the Christmas Eve lows.

LLEX – Microcap name that I’m watching for a pullback towards $1 for a long attempt. Very risky name.

MGY – Still waiting for a break of the 13 level for a run at the highs above $15. Very well defined risk management on this one using the moving averages which are all compacted in a 25 cent range. Using 12 as a stop would probably net 2:1 on the trade.

RIG – It’s still hanging on to the $9 level and sitting above the 8/20/50 day moving average combo. It would probably take an $8.50 stop to play this one long for a run to 10-11 range.

 

Also, the above trades are not recommendations in any way. These are just my notes and a way for me to organize my thoughts as the market opens each day. I post the notes here and if they help others, then that’s cool. Just my way of giving back a little for all the great stuff that I take from others who post their trading thoughts. Good trading Karma you know.

 

 

 

 

Trading Plan for Thursday, March 14, 2019

Today is decision day for the XOP. On Sunday I posted my plan for the week and the 30 level is where I had the market running into big supply. The E&P’s hit 30.16 on a spike after the EIA number and then consolidated the rest of the day closing at 30.01. Thursday we either get that rejection at supply or we get a run to 31. Let the market tell you what to do, this isn’t a spot to simply try to be early by guessing which way the market will go. Energy could still break your heart and turn down sharply if the overall market fails up here at the top of the range after a possible upthrust pattern yesterday.

6:45ET Complicating things a bit, I now see Trump/Xi have delayed trade talks into April. Not a huge negative, but not very helpful for today.

 

SPY – SPY made it to the 282 level I was looking for, topping out at 282.38. Wednesday’s high and low will be Thursday’s most important price points. First glance at the daily chart suggests that Wednesday’s action could have been a stop hunt and upthrust. I do not want to see the market take out Wednesday’s low, as that could be a disaster. We closed last week at 274.49, which is quite a run so far. If price tries to break out above 282.38 and fails, there could be a pretty good pullback, possibly all the way back to 278 or even the 200 ma at 275. Things looked very strong Wednesday and I’m thinking we probably move above and hold that 282.38 level and consolidate for most of the day, but there is some significant risk for the bulls today. How much more gas is in the tank for the overall market? From a purely longer term technical standpoint, there really isn’t much to keep this thing from taking a shot at the highs, and then the 300 level. While that would excite almost everyone, that could also be the head portion of a head/shoulders pattern in the making. It really depends on how fast this market melts up once the FOMO kicks in at new ATH. The primary watch today is to make sure Wednesday wasn’t an upthrust trap.

 

Oil – Oil managed to finally break above the 58 level and is sitting 58.47 as of about 5:30am ET. Looks like another solid day, but I wouldn’t be surprised for this to come in a little and retest 58 before the market opens. One concern though is Gold, it’s down almost 1% premarket, with gold miners down even more. That’s not a great sign for commodities overall. A stronger Euro has been keeping the dollar in check, but the Euro looks like it might have hit some resistance for the week in the 1.1375 area, so the dollar could gain, which usually isn’t a help for oil. The OPEC MOMR is also out today.

 

XLE – Energy closed last week at 63.90, so it’s gained about $2 this week to 65.98. It has climbed above both the 8 and 20 day ma’s and seems to be taking aim at the 67 level. It is lagging the overall market at bit, as the SPY broke to new highs Wednesday, yet the Energy ETF was still well below the highs from last week. XOM and CVX have had strong runs and could be topping a bit with the SPY. I’m watching 65.65 as the first meaningful level on the downside, followed by 65. On the upside, keep an eye on Wednesday’s high of 66.01. RDSA and BP are both up about +.6% early premarket and FTI is up a huge 6%, so that is a good signal for the US market. BP had a big day yesterday up about +3.2% and it took out the 200 day ma easily.

 

XOP – The E&P’s had a great day on Wednesday, closing up about 2%. The Permian names were the weakest of the group, with CXO and PE red and PXD (+.5%) neutral. The E&P group has almost perfectly followed the path from the decision tree posted on Sunday, rising right up to the 20 day ma at 30. This is a big spot and we likely either get a total rejection and run back to 28 or we get a breakout past 31 with a shot at 31.50. On the downside, 29.90 and 29.60 are the points to watch. On the upside, 30.16 is the first resistance, followed by 30.35. Once it clears 30.35, it should be a quick run to 31, where the real fun could begin.

Longer term, there is a pretty big Wyckoff accumulation formation going on in the weekly chart. I’m really starting to feel like this thing might be sitting right on the springboard, ready for a markup. I’m considering a long position if we take out that 30.35 level today. This formation is set to explode at 31.50 and there is room to 40. What I’d rather see though is a light volume fade back down to retest that 24 level one more time, but I think it’s going to be difficult to take out the 28 level. Anywhere between 29 and 30.35 is a difficult spot for longer term traders, and trying to play the up or down breakout is pure gambling. Let the market tell you which way it’s going and then follow. At 31.50, get long for a breakout OR let it fade to 28 and buy the dip for a longer term bounce. Any other plays than that are just low odds.

 

Swing Trade Setups:

Most of the swing trade setups from Tuesday and Wednesday are still in effect, so I won’t cover them again except to say that MGY, CLB, GLNG and APA are all looking like solid options.

APC – Watch the 45.50 level for a breakout and run to 49.

COG – This is the quality name in the natural gas space and I like it for a breakout of the 26 level. If it can take that out, there’s space to 29.

EOG – If you are very bullish and very aggressive, this one is a long using that 86.14 as a stop. Would be nice to get a dollar or so pullback to give this trade a try.

GIFI – Anyone interested in the offshore market should give this one a look. It could be a nice play using a tight 20 cent stop to $9 and trying to capture a run to $11.

HES – This one goes against the grain a bit as a short trade setup. It’s purely a math play using $60 as the stop and looking for a breakdown to the 50 day ma around 54. The trade needs the SPY to roll over also. Keep the stop tight though, because if it does break through 60, it could be at 70 in no time.

CDEV – I strongly considered trimming this position on yesterday’s run to 9.40, but didn’t pull the trigger. I wish I would have. I might lighten up if it takes another run today.

 

Be careful out there today and make sure you don’t get caught up in what could have been an upthrust on Wednesday. Any failure at yesterday’s high is an important signal.