Oil and Gas Stocks Outlook for Thursday, January 11, 2018
Jan 11, 2018 Trading Blog
On Wednesday, the XOP had only the second significant down day since this run began back on December 15. Price has run up against some market structure from fall 2016 and spring 2017 in the 39 area and is trying to consolidate for another attempt at breaking upward through it. Volume was fairly light on yesterday’s pullback and there didn’t really seem to be any excessive selling pressure, just a normal and orderly pullback as price nears the upper channel line on the XOP chart.
It has been months since I have taken a short in energy, but Wednesday was a great setup with very little risk. I got short at 39.02, with a risk of about 20 cents. Had this market moved up through the highs of 39.10, I would have covered. I’m still short this morning, but have moved the stop down a bit to guarantee some profit. If the opportunity presents itself, I plan on doubling the position if I can find a level to play off of safely.
There is a lot of talk about interest rates climbing quickly, and if they do the dollar could also make a quick reversal (with some lag time). As rates climb, the dollar will likely strengthen. I wrote about the EURO back on January 2 and the attempt to take out the 1.21 level. It failed for a second time at that level, which could turn out to be a double top. That double top point has coincided a bit with this top in the XOP. I’m not saying one is the cause of the other, but merely that correlations exist, which may be indicating some factor which both oil and the dollar have in common may be changing. Keep an eye out and see if we get a third test of the 1.21 level or if we get a complete trend reversal and a resulting upward change in the dollar index.
Outlook for Thursday: I’m thinking we get some continued pressure to the downside, but that pressure doesn’t seem very large. In fact, we could merely get some sideways movement today if the buyers can even out the market, and it probably wouldn’t take much buying pressure to do so. The first target on the downside is the 38.19 level from last Thursday/Friday (as well as Monday’s low). If that breaks, the next level I’ll be looking at is 37.65. The next level would be 36.93. On the upside, 39.05 is still the spot to watch. We took a shot at it on Tuesday and Wednesday, so it is clearly defined. If we can break that 39.05, this market would probably be at 40 in a blink, so it makes a great opportunity for a quick long scalp.
Individual Stocks: DVN has been looking very weak for the last few days. I’d like to pick up a long position somewhere around 41. XOG is another play that I intend on taking long. It made a great run from 11.50 to 16.50, but has given up about half that run on this current pullback. I really like this one around 13.25. One stock that really has an air pocket under it right now is XOM. If the sector pulls back, XOM could drop back to 84 in no time, which makes it a nice scalping target on the short side.
I don’t really like the natural gas stocks right now, but if we get an overreaction to the downside, I would gladly pick up some COG down around 26.50. Not a huge position, but just enough to have some solid exposure in NG.
SLB and HAL have had the best runs of almost any energy stocks since mid-December. SLB has run from 62 to 76 and HAL from 41 to 52. Those huge runs should pullback soon, as I can’t see them continuing at this pace.
Oil price continues to climb, but it hasn’t stopped the refiners at all. VLO has run from 65 to 94 without a pullback. MPC from 49 to 70 without a pullback. I will be watching the first pullback in these two stocks later in the year to see if there might be more run in them. But for now, I really don’t plan on doing anything with them.