Oil and Gas Stocks Outlook for Monday, October 16
Oct 15, 2017 Trading Blog
Although it was a horrible week for daytrading, last week went about as expected. After the six week run off the bottom, it was definitely time to consolidate the gains. The XOP has basically been in a $1 range over the last couple weeks and I’m impressed that there hasn’t been more of a pullback than what we have seen. It feels like there is some real strength under the market and when the supply dries up the index should move forward with another leg up.
The only negative that I can find is that the XOP wasn’t able to regain a close above the 8 day moving average on any day last week. Volume was below average on each day, so we really didn’t have an increase in selling pressure, but rather we had the buyers stepping aside and re-accumulating around the 33.50 level. Another thing to notice is that the XLE is having a very difficult time taking out it’s 200 day moving average. It has been fighting that level for the last 12 sessions and closed below it Friday. I don’t often trade the XLE, as it is a very diverse basket controlled by just a few large positions, but as an overall proxy for energy it isn’t sending a very positive signal.
XOM was the key last week as it crossed the 200 day moving average. I have been looking for XOM to make it all the way across the prior range to touch the 84.00 mark. It had a good week with positive price action reaching a peak of 83.08. The action on Friday wasn’t as good, but I think it should hold the 200 ma from here. If it somehow gives up the 200 ma, then the entire sector is probably going down with it.
While the E&P group was solid, the Services group, as represented by the OIH, wasn’t quite as strong. I think the services stocks might finally be getting the message that the E&P guys are not chasing production growth as much as they have in the past, but instead are looking to take a little better care of investors. All that $2 billion that APC is putting toward buybacks is $2 billion less that will be going into the pockets of the service companies. The rig count on Friday also showed that drilling is flattening out and maybe even rolling over. If funds are looking for value in the energy sector, they will probably be able to find it in the services industry in the coming months.
Outlook for Monday: I think we are looking at another week of consolidation with price sticking between 33.25 and 34.25. We might have a few quick tests of the boundaries at 33.00 and 34.50, but I don’t see price breaking out of this range yet. If price does manage to break out, I’d say that the odds favor a break to the upside. I’d say about 70% chance of an upside break and 30% chance that the break would be to the downside. For Monday, I think we may get a dip off the open and a test of the lows from Friday.
There is good support just underneath the range with the 50 day moving average now sitting at 32.50. Last week I mentioned that 33.00 would make a great point of support, especially if the pullback was slow enough to allow the 50ma to work its way up to meet price at the 33.00 level. It looks like we may in fact get that situation if price can hold up throughout this week. There are some sub 31.00 prices that will be dropping off the 50ma calculation later this week, which should allow the 50ma to move up to 33.00 quickly.
Trading Plan for Monday: I’m looking for an opening gap down or a dip down to the 33.00 level to test Friday’s lows and start a long position that I might be able to hold for a day or two. If the smart money is going to take this index up, they will likely first try to shake out the weak hands with a stop hunt under 33.00. If we see that stop hunt and then see price reclaim back into last week’s range, then loading up long will be a great odds play. If the XOP decides instead to open the week gap up or run up to test the highs, I will not be looking to short. I think shorting is off the table for awhile in the energy sector.
Individual Stocks: I’m still 100% cash and haven’t taken on any individual swing trade positions. I want to see the index make a move down under the 33.00 level first. I’m still watching APA and really want to start a long in that one, but I’m going to wait for a retest of the 40 level, which hopefully occurs on lighter volume than what we had on October 10. My favorite long target right now is DVN. It has made a nice smooth pullback around the 36 level and an entry down around 35 might be a possibility.
On the services side, one stock that really has my attention is NBR. I love the technical setup here at the $7 level and will be looking to start a long position soon. For total speculation and huge percentage returns, OAS is still a favorite. It has pulled back to the breakout point around 8.50 and found solid support there. If it holds 8.50, the next leg up could take it to the 200 ma around $11.