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