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

Technical Alert April 18th:  Rex Energy (REXX) This gas heavy E&P company has been take to the woodshed in 2012.  But at $9 the stock is woefully undervalued and due for a bounce.  The 2010 lows are at $9.00 (green line) and we could see a bounce off this support level in coming weeks. 

UPDATE April 23rd:  Bought REXX long at $9.45 

UPDATE April 27th: I remain long REXX from $9.45 and will add on any weakness.  Stock broke above $10 yesterday.  This could be a huge trade if nat gas prices hold onto their recent gains.

UPDATE May 1st:  REXX is breaking to the upside ahead of earnings tonight.  I am holding my long position through this earnings report.

disclosure:  long REXX

Technical Alert April 18th: Pioneer Natural Resources (PXD) is holding a strong uptrend (bottom green trend line).  Also notice how the stock has been consolidating since mid February.  Low ADX means this stock is ready to break into a new trend.  Given the strong uptrend I think the next move is higher.

UPDATE April 27th:  PXD is making a solid move higher out of the consolidation I pointed out on the 18Th.  I suspect PXD will test the $120's in the near future.

disclosure: No position yet

Technical Alert April 18th: Halliburton (HAL) oil services company reported earnings this morning well above analyst estimates.  Also notice how the stock is coming off multi-month lows (bottom green line).  Profit target is the upper green trendline and 200 dma.

UPDATE April 27th:  I remain long HAL.  stock is chopping around in the $34-$33 range.
UPDATE May 1st:  I added more size to my long HAL position today.
UPDATE May 15th:  HAL has broken through support at $32.00 and looks ready to test $30.00 tomorrow.  I sold half this position yesterday to lighten up and plan on buying back in at $30.00

disclosure: I am long HAL

Crude Technical Alert April 10th:  WTI dropped below $101 today and looks like it will test $100 either tomorrow or the next day.  Do you think it will break below $100?  Personally, I think we get a bounce.  Whether we hold above $100 in the long run depends on the strength of the coming bounce. 

Also note... very important global meeting with Iran this weekend.  Fireworks will fly if the meeting doesn't go well...

UPDATE April 12:  Crude bouncing ahead of weekend meeting with Iran.  Pivotal time for oil prices...

UPDATE April 17th: WTI has rallied back over $104 on the bounce...

UPDATE April 18th:  WTI dropped on a larger than expected inventory build...

Have any thoughts on the direction of oil prices? Post them below!

Popular question concerning natural gas prices:  Prices are so low ($2.03 today).  How much lower can they go?

Answer: the US is expected to run out of storage space for nat gas this summer.  Once that happens, I think we will see a capitulation in nat gas.  But that capitulation could come at much lower prices.  It's not out of the question for nat gas to trade at $1.25-$1.50 this summer.

UPDATE April 17th:  Nat gas broke below $2.00 today...

What are your thoughts?--- post in the comments section below...