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.