Oil and Gas Stocks Outlook for Friday, September 1
Aug 31, 2017 Trading Blog
Thursday was one of those good news / bad news type deals. First the good news, we had about double the volume that we had on Wednesday, doing about 13 million shares today. The bad news, price ran up into that 30-33 range and found a ton of supply right off the open, just on the bottom of that range. Price hit the 30.20 level around 10:15 am and then didn’t move off that point all day as the buyers just hit a massive wall of sellers.
I talked yesterday about there being no real sellers down under that 29.60 level. If larger fund buyers want volume, their only choice was to bid price up to where they did today to find sellers. Typical auction process. They bid price to 30.20, and found all the sellers they wanted. Many of today’s transaction were 60, 70, 80 thousand share blocks, very representative of fund buying. I would have really liked to have seen them have to bid price up to 30.50 or higher to get their orders filled, but there was so much supply waiting just inside the range that they didn’t have to bid it very far at all to fill the orders.
So the important questions are these: How much stock do they want and how high are they going to have to bid to get those orders filled? On Sunday I posted my thoughts on why we would likely be heading down in the XOP and my biggest concern was the amount of supply in that 30-33 range from all the buyers this summer. Everyone who bought that range this summer is underwater, and likely just waiting to hit the sell button to get out even. Seems like that is exactly what happened today. In fact, I was one of the sellers today, dumping all the longs I bought on the Monday and Tuesday dip. So I figure the amount of supply is fairly large, now we need to know how much demand there is currently. Was today just one or two large buyers? Will they disappear tomorrow and leave price to collapse? How aggressive will they be in their auction price to get the orders filled?
Outlook for Friday: The most important questions for Friday are do the large buyers show up again and how aggressive will they be. Price sat in the 30.10-30.25 range from 10:15 to close today, there wasn’t much reason to bid higher than that. I don’t really see them needing to gap the market up very far at all to continue filling their orders. But, a higher price would draw out more sellers, so they may. It would be nice to see aggressive buyers that pushed the price to the 30.50-30.75 level to get their orders filled, but I’m not really seeing it. It will also be interesting to see if today’s action brings out additional buyers who may have FOMO (fear of missing out). This could also cause a big gap up open.
The other side of this is what happens if they finished those orders today? We could get a gap down, or worse a gap up and a total failure if the buyers don’t return. Volume will be key on Friday. If we get through the first hour and we experience volume like we got earlier in the week, this market could drift down quickly back into the 28.96-29.90 range. That would not be good.
Trading Plan for Friday: Honestly, not much I can do with this right now. I still have zero desire to short this market and I’m not going to chase it long up here with a bad risk/reward payoff, especially right before a three day weekend. I’m not a believer in today’s rally. I dumped all my earlier longs from Monday and Tuesday around 11 am this morning. Those positions were very small, about 10-20% size of what I wanted. Had those positions been bigger, I might have given them a little more room to work. Also, Friday is the day before a market holiday, so much of the action could get done early, leaving the market to drift down in the afternoon when most everyone takes off early for the three day weekend, especially since there aren’t many people on the desk this late in the summer anyway.
Individual Stocks: I punted APA for a loss. It was the only loser I had out of my group of stocks, but it was the weakest stock on my board over the last couple days. I really don’t know what the problem is there. RSPP and PE were two of the strongest on the board as the Permian names were leaders. Integrateds seemed to be the worst with XOM and RDSA barely green and CVX red. The refiners gave up some gains from earlier in the week with HFC PBF VLO and ANDV all red. And finally, we say goodbye to ECR, which closed at 2.33 today. A great stock that was missed.