Oil and Gas Stocks Outlook for Tuesday, November 7
Nov 7, 2017 Trading Blog
Well, all I can say at this point is “I don’t know”. There is definitely no shame in admitting when you don’t know something. Every bearish concern I had regarding individual stocks and moving averages got blown away yesterday. The XOP found absolutely ZERO resistance or supply in the 35-37 range and who knows how far it could rip from here. There are no signposts that mean anything in this area, so trying to trade this is just blindly trying to ride the momentum train. That type of trading isn’t my thing.
I could say that yesterday’s huge 4% rip was a response to the Saudi news, but I don’t know that for sure. I could say that oil is just going to keep ripping to $60, but I don’t know that either. Have the recent earnings reports justified this huge upmove, not really. Was the huge 31 million shares a FOMO panic or a blowoff top? Don’t know that either. Truth is, I don’t see anything that is causing this other than pure supply/demand. There simply aren’t any sellers over the market right now, and what sellers are there just get completely mowed down on every run.
This kind of extreme buying isn’t normal. Something is going on that hasn’t filtered down to us common retail traders. Would mutual funds be buying in a straight up line like this after a 16% run, probably not. They are better at pricing their purchases and they rarely buy 31 million shares AFTER a 16% run. Someone else is buying this, or better said, many someone elses are buying this. There may be mutual funds, value investors, very short term funds, daytraders, swing traders buying. Almost EVERY group is probably buying this thing, hence the parabolic move. The nine month drop from the top at 43 was about 14 points. We just got back a over a third of that entire drop in 7 days. SEVEN DAYS.
Whatever the reason, it makes a market that is almost impossible to trade with tight risk control. The short side is completely off the table for trading. I might have missed the run up, but as you guys know from reading, I’ve been absolutely against shorting this market. There is no risk controlled profit to be made shorting a market where there are just no sellers. I won’t be shorting this sector anytime soon. Now the question is, “would I buy this sector after a 27% run off the bottom?” Not a chance. At this point, I’m sitting on the sidelines.
Outlook for Tuesday: What other option is there but a continuation of the run? Anyone who shorts this is crazy and simply doesn’t care about risk control or trading with the trend, or the absolute lack of sellers required to make a short profitable. At this point, I just don’t see this kind positive supply/demand unwinding quickly into a downtrend move. If you short this, you are simply throwing all your money on the buyers pulling back hoping the market falls so they can get a better price. At best, you could only be hoping for a climax buying day that rolls over into a consolidation range, which isn’t going to produce much profit on the short side. At worst, you are stepping right in front of a freight train.
So if you can’t short this, what to do? Not much. The only thing you can hope for is a consolidation range here and then try to get in on a decent pullback or a breakout of that range to the upside. While jumping right on the train here after a 16% run might work, the risk/reward of such a play is terrible.
Trading Plan for Tuesday: None. I’m sitting this one out for the rest of the week, or until we get some kind of signposts or points of information that I can use to set up a risk controlled trade. Many will make money simply jumping in long and hoping for the best today, but that just hasn’t been profitable for me over the long run. I simply need more market structure.
I know there are people out there who just love to short these kinds of moves, but if you decide to fade this market, please be careful, these moves can go much further than you think. If you short it, use tight stops and don’t get stubborn. Some will get lucky and time the short move perfectly, but most won’t.