Oil and Gas Equities Outlook for Wednesday, January 31, 2018
Jan 31, 2018 Trading Blog
Well, we are finally getting the long awaited pullback and now I’m starting to see FinTwit move all the way to the other side of the boat calling for total collapse. That is a clear sign of traders with absolutely no plan. Is there no happy medium in the world? People know the pullback is coming, they even hope for it so they can buy, but when it comes they all scatter and claim the sky is falling. The sky isn’t falling. This is your opportunity, take it. The research is done and the trade plans are written, now you have to stick to the plan even if it is a little scary and uncomfortable. There is no shame in getting it wrong. If the plan says buy and you buy and it goes down, then you just lose, that happens. But if you plan and then panic out of your plan, then that is the real killer in trading.
We got the pullback down to 36.75, with a close almost right on 37 (36.97). It was quicker than I thought it would be, but this is the first opportunity to pick up some deals since before Christmas. And things could get even better. With the speed and volume of this pullback, we could see price possibly make its way down to the 35-36 range, which would be an absolute gift. The API number on Tuesday afternoon was also a build, which won’t help the bulls.
I did some buying yesterday. I presently have PE, JAG, SWN and XOP. The PE is a large position for me, the JAG and XOP positions are medium and I will be adding, while the SWN position is still very small and I’m not sure if I’m going to add to it (and might possibly just dump it). I’ve got ECR, APA, DVN, RSPP, XOG and RRC on the radar for purchases. I don’t have any services or refiners on the buy list.
Outlook for Wednesday: It was a bit of a strange day on the volume side on Tuesday. The XOP did 38.6 million shares, which is close to three times average (TC2000 shows 163% of average) and the XLE did 91%. The only other two stocks on my board of larger caps that did more than that were PE (504%) and RSPP (185%). APA was a distant third at 69%. It seems buyers were going for the index ETFs rather than individual stocks. I’m not sure if maybe this was a bit of hedging with these or if speculative money was simply playing the overall sector movement. Whatever the reason, the volume in the XOP was huge, which indicates that this move might have more to go.
For Wednesday, I’m watching Tuesday’s 36.76 low for the first indication of direction. If we can stay within Tuesday’s range, then we have a shot at recovering. If price accepts below 36.76, then we probably keep searching the downside for a fair value range, which might be somewhere around 36.37. If we can’t hold 36.37, then it could get ugly down to the 34-35 range. We can only hope that we get that kind of gift. On the upside, the first test comes in the 37.25 area. If we can take that out, then there is a pretty significant liquidity gap all the way back to 38.25. There are a couple of minor speed bumps on that path (37.60 and 37.86), but nothing that should stop a determined run.
Keep an eye on the SPY, EURO and Oil as usual, but also keep an eye on the volume in the XOP, as that is probably the most important factor today. If the volume disappears, that could be a clue that there isn’t much downside selling pressure left and a long play might be setting up. Good luck out there and definitely stick to the plan and keep it safe.