Oil and Gas Stocks Outlook for Thursday, August 31
Aug 30, 2017 Trading Blog
Just when you think it can’t get anymore boring, XOP goes and has the lightest volume day of the year, 6.9 million shares. The 14 day ATR on the XOP has squeezed down to just 68 cents. I’m not sure how many of you are daytraders, but this is absolutely brutal for those of us who are. When the market is this thin and flat, nothing works. All of the levels I use for entries, stops and targets are all so soft that none of them hold at all against any sizable orders. There is simply no structure to the market, it is all just too fragile to trade and too easily moved with orders that normally wouldn’t even make a dent.
And you can forget shorting this market. Today was a great example of why this is so difficult in a market where there just aren’t any sellers. Around 11:30 someone decided to buy and the order really wasn’t anything sizable, and it pushed the market straight up 40 cents in 30 minutes. ANY buy order into this market of any size will take price straight up quickly. The buyer who needed the order filled just didn’t have the luxury of trying to get a decent price because nobody was willing to sell down here to fill it, so he had to rip it up to get it filled. Having random buy orders that rip the market like that is not a great environment to short. Although you can try to pick the top on these orders, you just don’t know how big the orders are or how many of them there are that might be coming next. It just adds an extra layer of risk to the short that makes it more unprofitable than trying to execute the same trade in a normal market.
So when does the volume come back into the market? Who knows. You can blame it on summer. You can blame it on the sector being out of favor. You can blame it on algos and computers. You can blame it on the hurricane. Eventually, it will come back, the question is just when. So we wait. This just isn’t a very tradable market right now.
Outlook for Thursday: The main thing to know about this market is that there are no sellers. That is really all you have to know. If you are shorting this sector way down here, you are trading against the odds. About the only thing that can be done here is to try and buy value for the sharp spikes that randomly occur during the day. This market has the feeling that it wants to explode to the upside, but instead just keeps drifting down and down. It could drift a long way down on no volume as the buyers just step aside and let it fall. But, the move back up will be blindingly fast, and you probably won’t be able to catch it if you aren’t already in the stocks you want. Most of the time when price gets compressed this far with no selling volume, an opening gap will occur and trap everyone. You can get trapped out of the market when it gaps and moves up so fast and leaves you holding no stock. It is then very psychologically difficult to buy after this move happens and you can just watch the market run away from you. I think what has to be done here is to figure out what you want and then scale in slowly. Be willing to take a little heat on the downside and realize that losses will probably be made up very quickly when this market snaps back.
Trading Plan for Thursday: Not much can be done with a market trading such light volume. We will likely continue to sit in this 28.96-29.90 range. My plan for tomorrow will be the same as every other day this week, wait for price to drop to the bottom of the range and just buy value and wait for the rip back up. We have seen it three days in a row and I don’t expect that pattern to change. I’m probably going to add to a few longs that I’ve already started. And then it is just sit and wait. Boring for sure, but anything else is probably just forcing a bad trade for the sake of trading, which is a losing proposition.