Oil and Gas Stocks Outlook for Friday, November 3
Nov 3, 2017 Trading Blog
There wasn’t much XOP action on Thursday as the index seemed to digest the gains that were made on Wednesday. Volume on Wednesday was about 29 million, but the volume Thursday was only around half that at 15 million.
On Wednesday, most of the trading took place above 34.80 and that level again acted as decent support on Thursday. Given that nearly all the 29 million on Wednesday and all volume on Thursday up until around 1 pm occurred above 34.80, we now have a huge set of longs that is currently trapped in a loser. We saw a little panic around 1:30 yesterday as price dropped through that 34.80 level and found a number of stops from weak longs. The market seemed to absorb most of those stops pretty well, only dipping to the 34.50 level. That 34.50 was a test of Wednesday’s low price. The market managed a bounce off of Wednesday’s low, but the XOP seemed to be capped as many of the prior longs appeared to be happy with dumping and trying to get out breakeven as price rose back to that 34.80 level.
Right now we have oil in the $55 range, how much more upside room to run is there? We are right at the breakout point on the chart and we could still see a clean breakout or failure. It seems like a future OPEC cut is now already priced in, so there is room for a downside shock if they don’t come through with that cut. Getting this oil chart to the highs has taken much good news, let’s just hope that we don’t run out of good news or get shocked if it all doesn’t come true. I’m definitely no expert on the commodity itself, but just technically, given oil’s recent run, $60 might be possible, but I don’t think we are on a straight line run to that point. Odds say we probably hit $50 again before we hit $60. If oil does drift back toward $50, then the XOP could be very vulnerable. There seems to be a lot of good news and expectations priced into the XOP right now and any disappointment could be detrimental.
One group that still concerns me are the oil services stocks. SLB had another terrible day Thursday and just completely failed on the 8 day ma again. It could be headed for a retest of the lows. HAL didn’t do too much better as it gave up the 50 ma and just barely hung on to the 8 ma. NOV is another one flashing negative signals. In the last two days it was solidly rejected by the 200 ma and easily gave up the 50/8ma. The OIH itself is still holding the 50/8ma, but keep an eye on it today as the strength there could be skewed by the strength in the refiners. As for those refiners, I’m not sure what is going on there. The decreasing input cost of falling oil price really helped them in the earlier part of the year, but now that oil is making new highs, the refiners are still running up non-stop. I’m probably missing something in that sub-sector, but get the feeling their continued run may be a bad omen for oil price.
The other key for today is XOM. It really seemed to save the XOP yesterday when it bounced back above the 8ma. It started the day off crashing down through the 8 day ma and falling almost a dollar down to 82.90. It found some support there and clawed back up to close just a few cents above the 8ma. XOM hasn’t closed under the 8ma since late August, so any close under that ma could be the first red flag. Keep an eye on that 83.40 point for today. CVX is sitting at 115.33, just above the 50ma of 115.25, so see if that holds. EOG, COP, OXY, CLR and DVN are showing huge strength, so keep an eye on whether those stocks can continue.
Outlook for Friday: 34.80 will again likely act as a magnet for today. I wouldn’t be surprised to see price rotate between the rough 34.50 and 35.50 level, as the market probably needs more consolidation here before moving higher.
Trading Plan for Friday: The most obvious trade for Friday is a dip buy near 34.50 for a rotation back to the top of the range at 35.50. The lows from Wednesday and Thursday should act as a concrete place for a stop, just give it some wiggle room under there since it is likely everyone else from the last two days has stops placed there as well. That 34.50 is a vulnerable level which is exposed to a stop hunt for any big money buyers looking to fill orders on the cheap. Use that to your advantage when trying to get a good long fill.
If we instead start upward for the day and test the high side at 35.50, I’m probably just going to shut it down and start my weekend early. I have no desire to buy way up there and absolutely have zero desire to short this market. The benefit of a run toward 35.50 would be to expose what kind of supply might be above this market. That would be good information to have for trading next week.
Individual Stocks: I still like NBR down at these levels. If it drops again today, I’ll probably go in for another long trade. Currently, nothing else I’m watching is near a buy point. Most of my favorites have drifted up to the point where the risk/reward on the long side just isn’t that good. We are at $55 oil and I just don’t see much upside in the near future.