Very interesting long-term chart for WTI crude...

Clearly, a huge triangle consolidation building in crude since 2011.  Question is, when does it break? And will the move be higher or lower?

I find it interesting that crude is still trading in the mid-$90 range even though US inventories are at record levels, Fed is rumored to start winding down QE soon (I personally don't believe they will), and the US Dollar is surging.

What are your thoughts on where WTI should be priced?  What does the chart above mean to you?  Personally, I think crude is on the verge of making a VERY big move!

Use the comment section below tell me what you think...

Spanish bailout news points us towards a strong open for energy related stocks tomorrow.  Crude futures are already up 2.2% as I write this Sunday evening.  The RSI divergences I pointed out in the last post are also showing up in some of the big energy ETFs like XLE, IEO, OIH.

Take a look at IEO...

As you can see, IEO made a lower low in price but the RSI did not confirm the new low as it made a higher low.

What's it mean?

Downward momentum for IEO is losing steam and a reversal to the upside should be coming our way soon.  What's more, as long as the Spanish bailout goes through, I think now's a great time to add some undervalued energy names to a portfolio.  I added APA last Thursday and Friday and I remain long GPOR, NOG from last month.  I'm on the lookout for more trades and you'll see them posted soon!

UPDATE June 11th: Traders used the strong opening as a selling opportunity.  Oil dropped 5 points from the pre-market high to the close, a huge down day by anyone's standards.  Today's price action was abysmal across the board and I think lower prices for oil and the S&P 500 are now in the cards.  I will be a seller of $APA if we get downside continuation tomorrow. 


UPDATE June 14th:  Choppy action for the broad market this week.  However, APA is screaming today after a bullish operations update this morning.  I remain long APA from $83.50.

NOG and GPOR are hanging in there today but both stocks are still stuck in a brutal downtrend.  My position size in NOG and  GPOR is relatively small so I am willing to take some heat on these stocks.  Both stocks offer considerable value in the US onshore oil E&P space.

For the better part of the past two weeks I have been largely in cash.  I have taken a few small long side risks, but not much to speak of. The big sell off in oil was a major headwind for E&Ps in recent weeks and there was no sense fighting it.

But now I'm seeing a lot of promising technical long setups in energy names starting to pop up.  Most every opportunity I see right now is a positive RSI divergence with a V-bottom in the ADX.

Here's an example...

Apache (APA) has made a lower low over the past few days while the RSI at the top of the chart has not. This signifies downward momentum coming to a close.  The red lines in the chart above show the divergance.

Also notice the ADX is above the red -DI line (green circle).  This means the recent downward trend is overextended and likely reverse course in the near future.

I have not established a position in APA yet but I will let you know via Twitter when I do.

With oil near $85 a barrel I feel much more comfortable taking long side risk in oil names.  More stocks with this same setup are GPOR, OXY, and OAS.

UPDATE June 10: I added a position in APA on Thursday and Friday. My average buy price is $83.50.




Disclosure:  I am long GPOR and APA

Market update May 15, 2012

Another rough day for energy stocks as a whole today.  Oil E&Ps, along with oil service names performed poorly relative to the broad markets, which also had a lousy day.  Bottom line, there's no point in trying to be a hero in the market right now.  Unless you shorted last week, there's really no play on energy stocks.  I am holding a few of the technical trades from recent weeks (HEK, MCF and REXX) but for the most part I'm largely in cash.  I will remain so until I see I high volume bullish reversal in XLE, IEZ, and IEO.  Until then, I will be safely on the sidelines.

Here's a quick technical look at XLE:

As you can see, XLE has clearly broken trendline support (red line) and is now in freefall.  The next downside target is the $64 area, and then $62.  If heck really breaks loose in Europe we could see last year's lows of $56.  I don't think that will happen, but I'm not ruling it out either.  At any rate, we have some fantastic buying opportunities setting up in energy names.  Just be patient and let the market find some support before jumping in.

Remember, just because stocks are cheap, doesn't mean they can't get cheaper.  Always use stops to protect your capital.

Crude Market Technical Update May 6th:  WTI broke through important trendline support at the $103 area late last week.  That break led to a big sell off on Friday with crude closing at $98.65.  The next area of technical support is the green trendline (support 1) at the $97.50.  We should see some sort of bounce at that level.  If not, the market is likely moving to the lower green trendline (support 2) at $92.50.  

UPDATE May 15:  Crude remains in freefall and looks as though it will test support #2 and $92.50 soon.  Once oil drops into the $85-$90 a barrel range I will become more willing to take long risk in oil names.

disclosure: I have no position in crude futures or ETFs.

Energy Stock trading plan for the week: Monday morning will likely be a gap down morning for US markets.  The first 30 minutes of trading will likely set the tone for the rest of the day.  I am watching a number of promising technical setups closely, but don't have new trades for you right now.

I don't think the correction we've seen over the past few days is over quite yet.  We'll likely see lower prices for energy stocks in coming days.  Keep your cash levels high for now and be ready to pick up some screaming deals later this week!

Watchlist Addition May 4th:  Heckmann (HEK) This stock has been demolished over the past 5 months.  But now that the stock has tested the 2010 lows of $3.60 (green line) and the weekly ADX line is showing extreme over sold readings (red circle) now's the time to start accumulating HEK.  What's more, the company reported earnings above analyst expectations last night.  They also raised their 2012 revenue guidance.

UPDATE May 15th:  I remain long HEK with an average cost basis of $4.00.  I'm holding with a stop below the recent lows of $3.50.

UPDATE June 10th:  Sorry, late post- stopped out HEK at $3.50.

disclosure: Long HEK, My average cost basis is $4.00.

Watchlist Addition April 29th: Contango Oil and Gas (MCF)  MCF is a Gulf of Mexico oil and gas producer.  Notice how the stock is near the bottom of range.  I am watching this name for upside in coming weeks.

UPDATE May 1st:  MCF triggered a long entry at $54.63 this morning.  

UPDATE May 15th:  MCF has remained remarkably resilient to the drop in broad markets in recent days.  I remain long this name.

UPDATE June 10th:  I remain long MCF.

disclosure: I am long MCF

Watchlist Addition April 29th: Westport Innovations (WPRT)  WPRT is a natural gas engine maker who's stock has sold off hard in recent months.  The shares bounced off the $30 support level on Friday and may have more upside in coming weeks.

Update May 5th: WPRT rejected the 200 dma yesterday.  I closed my position for a small loss.

disclosure: position closed