Oil and Gas Equities Outlook for Monday, February 26, 2018
Feb 26, 2018 Trading Blog
I posted some concerns about my current bearish thesis yesterday and it looks like several of them are continuing Monday morning. The EURO is up strongly +.3%, GLD is up +.7%, TLT is green +.3% and the SPY is stronger by about +.4%. I expected that we might get a continuation gap from Friday’s later afternoon spike and close, as many shorts or margin calls who didn’t act on Friday might be forced to act on the opening squeeze.
As for energy, oil is down just a bit at 63.40, but the XOP is already trading up +.4%. I was hoping for a larger gap up Monday, but there are still a couple hours to go until the opening bell.
Trading Plan for Monday: I am looking for a spot to get short on an opening gap and run. I expect the XOP could make a run at 35 as the remaining shorts who are trying to ride this spike out finally capitulate and cover. Also, there are many bulls who see this as a clear breakout of that 34.50 level and they will be jumping on the trend hoping for a gap and go play and an all day uptrend.
I need some decent XOP structure to get short today. I would like to see some type of double top formation with the first high being a buying climax and the second retest of that high being on very low volume. I’m specifically watching the 35.30 level. At worst, I think there is a good chance that any opening gap or run will probably at least come back and retest the breakout point at 34.50. At best, 34.50 fails and we get a run well back under 34.
On the long side, there could be a trade if the XOP gaps or runs up and then fades back to the 34.50 level. If I see that big buyers step up at the 34.50 level to support the pullback, then I have no problem getting long with them for a run back at the highs. This isn’t my preferred play today, but if it is there I’ll certainly take it, especially if the SPY, TLT and EURO all remain green.
The most uncomfortable trade for me today would probably be if the XOP simply faded on the open back down to the 34.15 level. I am expecting Friday’s momentum to continue and if it disappears, that really calls into question the motive behind that Friday spike. In the 34.15 area, there isn’t a very good risk/reward situation for getting short, nor is there a good risk/reward situation for getting long with that huge 34.50 resistance overhead killing the reward.
Most days I don’t have so many opposing trade plans, but this week I think there could be a large move. I think the move is down, but I don’t want to miss a great opportunity on the long side if I am wrong. It is great to have a bias, but the key is to realize and admit when the bias is wrong and then flip to the other side to trade it. This isn’t about being right, this is about making money.