Oil and Gas Equities Outlook for Tuesday, January 30, 2018
Jan 30, 2018 Trading Blog
Monday was cruising along just fine until about 3 pm EST and then the bottom just fell out. It really looked like price was going to regain last week’s range at 38.70, but when that failed things got really ugly and when the dust cleared the XOP was sitting at 38.30, down almost 2%. I was actually giving some serious thought to trying a long position if the XOP broke convincingly back into last week’s range. Things can change fast. I expect that there might be more downside Tuesday, and possibly a big dowside gap.
We had that same relative weakness issue going on between the XOP and SPY, as the SPY was only down about .7%, but didn’t take out Friday’s range, and was still near the high end of last week’s range. In fact, the SPY finished by creating an inside day, which really only signals indifference or consolidation, while the XOP clearly showed selling weakness. I feel like there could be some follow through on the downside today in the SPY, but I’m not yet seeing any heavy selling pressure there, and it can still rip up so caution is still needed.
Outlook for Tuesday: I’m still looking for the short term downtrend in the XOP to take it down to 37 at some point this week. There is a level at 38.18 that could provide a starting point for a rally, but that could be a weak one. On the upside today, I’m still watching that 38.70 level to be the spot to indicate a trend reversal back to the upside. But first, price has to get back above 38.50, which should act as upside resistance for Tuesday. On the downside, 38.18 might provide some support. We are also sitting right on the mid-channel uptrend line which could provide some support. If 38.18 gets taken out on heavy volume, this thing could be at 37 very quickly, as there just isn’t that much to stop the fall. The first decent support would probably be the January 2 opening price of 37.49, which produced a gap from the December 29 close of 37.18. The next road sign would be the 50 day ma at 37.21.
I’m going to let this thing open today and probably sit and watch the first hour to see where today’s downdraft stops. Market players are still so conditioned to “buy the dips” that I’m sure at some point during the day bargain hunters will try to step in and set up a long trade. I just don’t know where that exact point will be. I probably won’t be trying a short today, not because I don’t think it will work, but because there could be some sharp, random rips up that make shorting difficult with the SPY, Oil and EURO still diverging somewhat from the XOP. While the short trade might work, controlling the risk is just too difficult today.
If nothing appears today, then I’m just fine with watching this market burn. I’d really like to see a sharp pullback as far as possible, because I think a long position would probably be the way to go for a longer term swing trade. I would gladly buy under 37 for another shot at taking price back above 40.
Individual Stocks: I almost bought PE after hours Monday. There were some shares at 27.25 that sat on the offer for hours and nobody took them. I would have jumped on them had yesterday not shown such overall weakness. I expected a big down open on Tuesday and figured I could possibly pick them up down in the 25-26 range this week. Overall though, there really wasn’t that much damage in the larger cap E&P names compared to their smaller cap counterparts. The one name that I think really has some downside potential is APA. It could be a great buy on a move back toward 40, as people are really still unsure on this one, and we have seen how things like LPI and PE have been treated on the least bit of disappointment or lower guidance. I really don’t see much in the bigger cap names that would make me want to buy. I did pick up a little SWN and had a limit order in to buy some JAG. I’ll probably add to the SWN position under 4.50 for a longer term hold. I’ve also still got the never ending obsession with ECR, but it needs to get closer to $2.00, which probably isn’t going to happen.
AR could show some upside after a report to shareholders stating how they would like to unlock the potential value in the shares through several methods. NBL could also show some upside with an announcement of a sale of about $800 million in assets.
Good luck today, but be really careful on days like today, the movements can be extremely sharp and very difficult to control position risk.