Oil and Gas Stocks Outlook for Monday, September 18
Sep 17, 2017 Trading Blog
It was a great week for the energy sector and it seems like things have finally turned around. But before we get too excited, I want to be a real downer and throw one more bearish scenario out there.
The only concern that I have is that the move that started in late July at 33 and finished mid-August at 29 was the selling climax in the sector. If so, we could just be entering the process of base building, which could take us down to test the 29-30 level again during the next month. Imagine a box that extends from 29 up to last weeks high of 32.33 and now extend that box to the right for a few months, that could be our base building range for awhile. I’m not saying that is what is definitely going to happen, it is just one of the possibilities that I give high odds. Even if this does happen, at least we have most likely broken the downtrend. Going sideways is still better than going down.
The above situation becomes even more likely if we get a pullback in the SPY. The action in the SPY was good on Friday, with a decent up range and high volume so I’m not really expecting a down move this week in the overall market. Be careful if your charts don’t account for dividends, because that is what the gap down on Friday was on the SPY chart. Same for the XLE, it also had a dividend on the chart from Friday morning.
Now, on to a more cheerful and positive outlook! If we don’t fall into the scenario above, we could make a run at 33.50 this coming week before pulling back. We had a defined range of 33.50-30.00 and we dipped below it in late August. That price auction out of the range was rejected and price moved back into the range. Usually, when price is rejected at one side of the range, it then moves to test the other side of the range, which would put us somewhere around 33.00. The real clue of a trend change on this move up was the huge volume (27 million) on the 50 day moving average break. I believe that if we run up and test the top of the range, that our point of pullback would be a retest of the 50 day moving average. Right now that average sits at 31.00, but it is moving up with every day the XOP stays upward in the range. The 50 day moving average will be the first spot where I will consider some longer term trades.
Outlook for Monday: There was some great consolidation that happened Thursday and Friday, which makes me think XOP might take another shot Monday morning at the highs from last week. If the volume is good and we can break those highs, there is a real chance we could make a run for the top of the range between 33.00 and 33.50. A little less positive would be a test of last week’s high and a failure and then a fall back into a range from 31.50 to 32.50 for a few more days of consolidation. The worst case is a drop below 31.50 and a retest of the 50 day moving average at 31.00 and close of that 30.75 opening gap from last Wednesday. For Monday, 31.50 is the important level on the downside, 32.33 is the important level on the upside.
Trading Plan for Monday: I will not be shorting this week, there is just too much upward momentum to make shorting a high odds play. I would have to see some huge selling volume to think about shorting, and I haven’t seen that kind of selling volume in weeks, so I doubt it suddenly shows up tomorrow. I will be watching the 31.50 point for my first long trade setup. I would really like to see that get tested early Monday and then ride a wave back up toward 32.00. My second trade area is the 31.90 point. If we move up there and create some time of sideways range I will try a breakout of that range for a run toward last week’s high.
For longer term trades, I will be waiting for a dip to the 50 day moving average to see how it holds. If things look solid on that test, I will be looking for longs in DVN, APA, RSPP and PE. Also on my list, NBL, NFX and CLR. One stock that could really return +25% is OAS. A long around 8 with a stop just under the 50 ma could be a worthwhile gamble. On the services side, I also like SLB long on a move back toward 65 for entry. Remember guys, these are not recommendations, these are just the things that I am looking at for possible trades for me. As the old disclaimer goes, do your own due diligence before getting involved.