Oil and Gas Stocks Outlook for Monday, December 11
Dec 10, 2017 Trading Blog
Sorry for the lack of posting this past week, but I’ve been winding it down for the holidays with the kid getting out of school this week and wife off work for a couple weeks. The JayZ concert also took a few days to recover from, can’t do it like I used to. Sometimes it is good to take a step back and enjoy the family, do some fun things and catch a little break from trading.
It was an interesting week for the XOP. The market opened up with that test of the highs at 37 and failed convincingly, which led to a quick fall all the way to 34.50. I wasn’t expecting a fall that far, but looking back, that level makes perfect sense as it was a swing high from late September and flipped to being a swing low several times in mid November. Resistance becoming support. The bounce on Thursday and Friday started right on the 50 day moving average and retraced almost exactly 50% of the Monday to Wednesday fall.
So, where to now? This week should be the last decent volume that we see until January, but I don’t think volume will be high enough to push us out of the 34-37 range. I’ve seen some guys throwing around the tax loss selling excuse, but that should be done by now. If there was still tax loss selling to be done, we probably wouldn’t have got that bounce Thursday and Friday, and the volume last week would have been heavier.
Overall, the picture is still positive for energy stocks. Pulling back to a larger view on the XOP, we have run from 29 to 37 since September. The most recent pullback from 37 to 34 seems like a big move, but in the overall run it was roughly a 38% pullback, which is fairly shallow, indicating that the overall uptrend is still healthy. What I think we may be seeing is the creation of an ascending type triangle squeezing ever closer to 37 with higher lows created along the way. We could have a nicely formed base under us on the next approach of 37, where we could get a nice handle type formation for a risk controlled entry for the breakout.
Outlook for Monday: At this point in the XOP, 33.85 is the level to watch on the downside. That represents the swing low on this pullback. The 200 day ma is just under that at 33.69. On the upside, 37.00 remains the cap. I’m looking for a retest of the lows from last week (and 50ma) around 34.50 for a long trade early this week. If that level doesn’t hold, I’ll probably move to the sidelines and see how close we get to that 33.85 mark. I have no desire to short the XOP right now.
Individual Stocks: Last week was a disaster for natural gas stocks. I picked up RRC (16.30), AAV (3.97) and ECR (2.14) on the drop. These are going to be longer term plays for me (probably 2-4 weeks), as this group might see a bit more pain before turning back up. I will be adding to ECR on any drop near 2.00. I thought I’d get a chance to add on RRC when it took out the lows at 15.98, but buyers stepped in and there was no quick drop entry on the stop run under the lows. The quality name in the sector is COG, but it really didn’t show much damage. I’ll be watching the 27 level to see how the leader holds up in the natural gas space.
I’m watching RSPP as my favorite swing trade idea at the 35 level. Other possibilities: LPI down near 10, EOG around 98.50, APC near 47 and APA on any drop near 40. These are all quick swing trade ideas. I’m watching CVX for an daytrade near 119.