Friday Oil and Gas Stock Outlook
Aug 4, 2017 Trading Blog
Friday’s XOP Grid:
Thursday High 31.73
+1 ATR 31.40
Friday Pivot 30.90
Thursday Closing VWAP 30.82
Thursday Close 30.55
Thursday Low 30.41
-1 ATR 29.75
Things are going pretty much as set forth in Sunday’s post regarding the next leg down in the XOP. We are down about 7% this week and making a run at the lows around 29.90. I think there is a good chance we take those out Friday.
Biggest piece of advice today: Don’t be a stop hunt target! Notice that taking price down to the lows is going to stretch things to about -1 ATR today.
If the XOP is to have any chance at making a bottom here, it is imperative that those 29.90 lows be taken out and all the stops cleared under that level. The liquidity there should be very large and if larger funds want to acquire an attractive position in energy, that is their best source of liquidity for a long and an excellent entry price.
Clearing out all those stops also takes out all the weak longs that would be sellers and clog the path on any move up from the bottom. Everyone who bought in the 30-33 range will simply want to sell breakeven, thereby stopping progress. Why not just clear them out on their stops and transfer all that stock from weak holders to strong holders? Second, any run down below 29.90 is going to bring in a huge amount of shorts looking for a big move down. It is my opinion that those guys are late to the short party, given that this down move in the XOP is now about 8 months old. If they take price down under 29.90, there is a good chance a large number of shorts will pile in, and when the price turns back up, those guys will be trapped and will have to cover, giving that much more juice to a run up.
It’s still early and I haven’t seen any negative sector news or any downgrades yet, but I expect that there might be some coming. Oil price is sitting around 48.50, and I wouldn’t be surprised to see that take a dip in the 8:00-9:30 range. I expect that there will be a negative narrative created somehow this morning to take price down.
So if price dives, what is the plan? I’m going to be scaling in long to XOP on any break under 29.90. I’ll probably be buying all the way down to 28.00. As for individual stocks, I think there are good deals in some of the up and coming oil stocks including CDEV, JAG, XOG, RSPP, SRCI and ECR. In the larger stocks, I think the Permian names have probably been overdone to the downside including PXD, PE, APA, RSPP, MTDR and CXO. I’d probably avoid the integrated oils since they have not pulled back with the rest of the group and they might not offer that much bang for the buck on any snap back bounce in the sector. Good luck today.