Oil and Gas Equities Outlook for Thursday, February 8, 2018
Feb 8, 2018 Trading Blog
I really thought we had a chance to make a run yesterday, but the SPY ran smack into the 50 day ma and reversed. Once we got back inside Tuesday’s range at 269.70, it was back to being advantage shorts. We bounced across that level all afternoon before finally giving it all up around 3:30 and making a run at the lows of the day. I don’t expect that Thursday is going to be any better.
As for the XOP, it was a complete disaster. The relative weakness showed at 10 am, and it went straight down from that point without a significant rally for the rest of the day, closing at the lows. I’m not sure what the main driver was, but the EIA report at 10:30 certainly didn’t help with it’s surprise build.
The USD.CAD had another strong day, which coincided with about a $3 drop in oil. The run that started last Friday on the CAD has mirrored the move in oil, so keep an eye out for any divergences in the two. The EUR.USD has also collapsed and represents the overall dollar strength well. I tracked that 1.21 breakout earlier in the year and now we look set to retest that level from above. The TLT (likely the leader in this whole show) and GLD are both moving as they should in a higher rate/stronger dollar environment.
Outlook for Thursday: Yesterday’s close right on the lows in the XOP indicates that we probably have more downside to go. Oil is headed down again this morning and testing Wednesday’s lows. I’m not sure if there is enough negativity to produce a down gap Thursday, as we could get some bargain hunting right off the open, but I suspect that it won’t last long, if it happens at all.
On the upside, 34.10 is the level to watch. We have been playing around with that level all week and it has become a pretty big resistance at this point after Wednesday’s late day dive. If it can take out that 34.10 area, then it has the ability to run a dollar just as it did on Tuesday afternoon from 34 to 35. On the downside, that opening spike from Tuesday at 33.46 is the low for the week that I feel like we should test soon. The only trade I see today is to give that test of the lows a long trade on low volume, if there is also corresponding strength in the SPY. If the SPY is weak and headed lower, then I’ll pass and just watch the XOP burn today and look for some deals late in the day on a few individual stocks I have on the radar. If things turn ugly in the overall market and oil continues to fall, we could easily see the 32 level in the XOP.
Individual Stocks: If the index falls today, I’ll be looking to pick up some DVN, APA, COG and XOG. I’m still not interested in any of the services names or any of the refiners. I picked up my second helping of ECR yesterday and am happy with my average price of 1.95 on the position. I’ll be adding more on any drop under 1.80.
One stock that really interests me is PE. It managed to have another green day on Wednesday, even with the XOP down over 3% and crashing to lows. I’ve been watching this one for about a week and it is clear that someone is accumulating pretty heavily in the 23.40 range. Watching this chart on an hourly level, a clear Wyckoff accumulation type pattern has emerged. I expect that this will eventually form a spring on a dip under 22.50, which will make an incredible long entry. I’m already in this one, but if I see that spring develop, I’m probably going in for more.