Oil and Gas Stocks Outlook for Thursday, November 2
Nov 2, 2017 Trading Blog
The XOP cleaned up the supply in that 33-35 range and then started chewing into the 35-37 level on Wednesday. After watching yesterday’s action, there appears to be a good bit of supply in that level. Price jumped the 35 mark around 9:45 and then sat in the 35.00 to 35.40 level for the rest of the day where sellers poured on a whopping 29 million shares into the demand. The buyers patiently absorbed it all and the index closed near the highs at 35.30.
It was fascinating to watch the market makers gap the XOP well past the 200 day moving average and right into the vulnerable stop orders sitting just over the market. The liquidity was there for the taking and they made full use of it matching off every stop order, as well as all the orders buying the breakout. The real key now is which side blinks first. Do the sellers run out of supply first or do the buyers get their fills completed first and then pullback?
XOM was strong enough to close well above the 8ma, however CVX couldn’t hold that mark, but it at least held the 50 ma. SLB is still looking a little weak only closing up .4% on a day when the sector was huge green. The services sector is definitely lagging the E&P players. One group that I thought was interesting was the refiners. Oil price is steadily climbing, yet the refiners continue to breakout to the upside. The only other thing that keeps nagging at me about energy is the developing broadening formation. Yesterday’s move took the XOP right to the upper megaphone line formed by the highs in July, August and late September. If this trade gets crowded on the long side and price discovery hits a dead end, the next move could be sharply down. I think the chance of that happening is very small, but this pattern just bothers me a bit.
Outlook for Thursday: It is tough to say who won Wednesday, the buyers or the sellers. It was a huge volume day and it appears that the game probably played out to a tie, only to be completed in the coming days. I really feel like there is more supply than the current demand can absorb in this 35-37 range. Therefore, I think we sit here and move sideways until the buyers are all filled, then maybe the XOP pulls back to the breakout point and 200 ma. I would be really surprised if the buyers had the strength to cut up this level all the way to 37 given how much supply should be here, but you never know.
Trading Plan for Thursday: I’m not jumping in this market during the first hour or so today. I’m going to let this battle settle out a little and look for volume clues that one side is running out of juice and losing control. I will not be shorting this market. I would ideally like a pullback down under 34.80 to consider a try on the long side and preferably a gap fill and retest of the 200 ma at 34.30. I could see getting long in the 34.50 area and using the 200 ma as my stop.
Individual Stocks: I got lucky dumping NBR yesterday at 5.95, as it closed at 5.77. I thought the market makers were just taking advantage and gapping the market to grab the stops, and therefore thought that taking the quick profit was the right move before the index faded back. The index didn’t fade, but NBR did. I never did get a fill on DVN and it just completely ran away from me up almost 6%. All of my small speculative picks have also run away from me and it doesn’t look like I’ll be chasing those on this leg up. I’m happy to just wait until they drop again.