Oil and Gas Equities Outlook for Wednesday, January 17, 2018
Jan 17, 2018 Trading Blog
We finally got the long awaited pullback on Tuesday, but I’m not really sure how far this one is going to go. We are currently in a bit of an overbought condition, so there is likely still some upward momentum still lurking which may give this another push up today. It will be interesting to see how much buying pressure remains after yesterday’s move.
I posted an XOP chart yesterday on Twitter (which you can find over on the right side of the homepage) which shows where I think this pullback goes. I’m looking at 37. That is a combination of a few things: 1) it is the uptrend line which started back in September, 2) it is the peak of the last leg up where resistance should now be support and 3) it is about a 50% pullback of the latest leg up. Many of the individual energy stocks have a rough form of this chart. To be clear, this isn’t a prediction, it is simply a logical path for the market to take. It is merely a starting point or a road sign off of which to base trades. If it doesn’t make it down to 37, then the market is stronger than expected, if it takes out 37 then I know the market is weaker than expected. It isn’t the prediction of hitting 37 and I’m not putting on any trade right now short expecting to hit 37 as a target, but rather I’m using that to gauge how the market differs from the expected, which leads to formulating trades based on that difference.
Outlook for Wednesday: I’m expecting at least some attempt from the buyers to step in and try to push this market back up. I’m not sure how strong that buying pressure will be, but I think 39.50 probably offers the first real test of the buyers’ strength. If they can take that out, then there is a good chance that the real pullback hasn’t started yet and we could again move back to the highs, which would probably catch a lot of shorts on the wrong foot. I am one of those shorts, as I’m still long half of yesterday’s position taken short from 39.75. If the buyers take out 39.50, then I’m probably going to have to think about covering this position. I was expecting an opening gap down to cover it, but that isn’t looking likely as of 7:00 am EST.
That is the frustrating thing about being in an overbought condition, technicals which should work, many times don’t. Relative strength between the SPY and the XOP will be important today. I’m feeling like the SPY probably just bounces right back up today, as everyone is still conditioned to buy the dip and the SPY is in just as big an overbought condition as the XOP. Keep an eye on XOM and CVX for SPY/XOP clues.
On the other hand, if there is a weak or minimal push up from the buyers and this market rejects 39.25 or 39.50, then we could easily be looking at 38.25-38.50 today, and maybe lower if the SPY also decides to pull back more.
Individual Stocks: I had XOG on the radar to buy yesterday at 13.50 and I probably should have pulled the trigger around 13.65, but I really thought I’d get a better price on a gap down open Wednesday. There is a good chance that I completely miss my opportunity in XOG. If this market does bounce back toward new highs today, my first choice of a daytrade is APC. It has been the strongest of my daytrading stocks and has a pretty tight stop around 58.85 for a long attempt. Second choice for a long attempt would probably be DVN.