Oil and Gas Equities Outlook for Tuesday, January 23, 2018
Jan 23, 2018 Trading Blog
There isn’t much to write about today, this market is purely a one way train and all you can do is buy. It is a pure greed-fest. It is in such a momentum driven overbought state that technicals are fairly useless. While some people love these kinds of markets, I hate them. None of the tools I use work. Half my toolbox is useless, as shorting is completely off the table right now. The other half doesn’t really help either, as my primary method is to buy pullbacks and retracements, but there just aren’t any that are playable in this kind of market.
As I posted on Twitter yesterday, I have only seen markets this one sided a handful of times in 19 years. It almost seems as if all the supply of stock is now in the possession of a finite number of hands and they are driving it as high as they want with relative ease. There simply are no sellers anywhere, nobody is willing to turn loose a single share out of fear of missing out on the run, while the buyers are willing to pay any price to get it so that they don’t miss out on the run. At some time in the future, a tipping point will be reached and that first big holder will decide he’s happy with his profit and he will be first out. And then another, and another, and then the flood of sellers will make a rush for the door to get out. And then the bull market is over. It will happen and it will be so quick that most retail traders will never see it hit them until the damage is done.
But for now, the run continues, so what to do? Well, as a buyer of pullbacks, all I can do is wait. Move to the sidelines and just be willing to watch the parade pass by. Definitely not much fun. The only other option is to jump on the fast moving train and hope that it doesn’t crash or reverse on you. The only problem I have with that method at this point in the run is that it is extremely difficult to manage risk. The pullbacks are so sharp and so unpredictable that getting stopped out is almost a given on most trades. All those stop outs really add up, especially if you never really catch a good wave up.
One mistake you definitely don’t want to make (and I made it yesterday) is to buy the laggards thinking that you are getting a good deal and that they have to run since everything else is running. I took a shot long on PE yesterday thinking that it should eventually run since everything else was running. It didn’t. I ended up taking pretty much breakeven, but had the market turned down it could have broken sharply and hurt me.
Outlook for Tuesday: The only trade I see for Tuesday is a pullback into the 39.30-39.50 range for a shot long. The only problem with this trade is that it is going to require a wider than normal stop, as this market is likely to be more volatile than usual. The only concern I have about the XOP is that it hasn’t hit a new high, while the SPY has easily reached new highs. There is a bit of relative weakness. The only other trade I see is trying to play the breakout of 39.92. I’m not a breakout player, as most breakouts fail and the risk is too hard to manage, but in this market the odds are better than average that a breakout will likely work here.
On the short side, the only place I’d be willing to try a short is on a failed breakout described above. If the XOP tests 40 and clearly fails, I might give it a shot, but only if the SPY is in a clear downtrend or pullback. If the SPY continues to run, then shorting is probably the wrong side to be on for anything.
Individual Stocks: I don’t see anything that I would pay up for at this point. Everything is so overbought that the risk/reward is just so skewed that things could easily go very wrong. I’m holding only JAG right now, and I’m probably dumping it today on any run since it looked fairly weak compared to the sector yesterday. Sometimes the better course of action is to bypass some profits in order to avoid the large risk which is surely going to appear at some random unknown point. It hurts to be out, but being greedy here could be a real killer.
Good luck today and be safe out there. And remember, you don’t have to catch every market move, greed really can kill you. Sometimes playing safe is the better long term play, especially if this type of market doesn’t fit your trading style.