Energy Predictions for the First Week of the New Year
Jan 2, 2017 Trading Blog
The last week of 2016 was pretty much a waste of trading time for me and I probably should have just taken the entire week off to recharge the batteries. Hopefully, the first week of 2017 will get the year off to a fast start. Honestly, I’m not really sure what to expect in energy this first week, but my gut says there could be a dip coming in energy. Many of the higher timeframe charts show energy stocks near the upper limit of trading ranges and a move back toward the bottom, or at least the middle, wouldn’t be a huge surprise.
The XLE had a very defined upsloping channel that ran from mid-April through early November before breaking out right after the election. It seems like the XLE might be wanting to come back to that channel and either test the top of the channel in the 74 area or possibly re-enter the channel with a low of around 70. Friday’s action took it below the 21ema and well below the 8ema and both of those ma’s are looking like they might want to turn down with the 8ema possibly crossing down through the 21ema. That kind of move would signal a minor shift in trend and several weeks of decline could be possible. Price has actually been forming a rough bull flag through most of the month and 76 is going to be an important level to reclaim in order to get the bull charging again. Let’s hope price can break the upper bound of the flag and get back above the 8ema for a continuation of the bull run to start the year.
As for oil itself, the USO is really trying to get back above that 12.50 level, which is a support turned resistance area dating back from August of 2015. That 12.50 area was support back then, was broken in December 2015 and then acted as resistance in June of 2016. The $12 area has acted as resistance several times in the last quarter of 2016. I don’t trade the USO very often, as it is simply my equity reference point for the actual oil price. Occasionally, I will trade the QM mini oil futures contract, but I’m not a fan of the spread in that particular contract. I have traded the CL contract in the past, but since I’m mostly trading energy stocks during regular hours, trying to trade CL in off hours is just a little too much risk for me. I’m not a huge trader, my account usually hovers around $60k with 4:1 buying power of $240k, so when I call out trades know that I never put more than 1% of that account at risk. Trading the CL is just too much risk for the size account that I am trading.
Natural Gas (UNG) finds itself in a little better shape than USO and could be headed for a breakout of the 9.50 area of major resistance which it established during the last couple of months of 2015. The natural gas stocks (COG, RRC, AR, EQT, SWN, RICE) are going to be some of the better performers this first quarter if UNG stays strong.
Hopefully, we will get a clear signal this week on which way oil and natural gas want to go so that we can establish a direction for the XLE and then move on to formulating a trade plan for some of the individual stocks. Be patient this week and let the direction reveal itself.