Oil & Gas Stocks Look Shortable
Duru sent me an email about potential oil & gas shorts so I thought I’d take a look. Back on February 1st I pointed out how toppy some oil stocks were looking. I posted a chart of SWN, noting the bearish engulfing pattern it made that day. It proceeded to drop more than 20% over the next 8 sessions. (I hope some of you made some money off of that b/c I sure didn’t!) Well now it has bounced along with some other oil/gas stocks. These bounces look shortable to me. Here are the current charts of Southwestern Energy (SWN) and Valero (VLO):
Oil, on the other hand has just risen back above its 200-day moving average and is just above its multi-year trendline — probably not the best place a short. So the commodity looks like it could bounce here, even if the oil stocks look like they’re headed lower. They never make it easy…
This post has 16 comments
February 19th, 2006
Hey there. Love the site. Wondering if you could give me your thoughts on the chart of BMD. Thanks.
February 19th, 2006
I will remind folks that the bearish engulfing patterns came right after the Fed essentially said it was coming after the rise in resource prices now.
February 19th, 2006
I believe that swn still has room to go upto 38.2% Fib retracement level at $36.08, also Full STO is not yet overbought, RSI and CCI are moving upwards.
Also, I read somewhere that next month crude o/p will be cut in the meeting held in march which might boost the stock price in short term…. I will post the link if I find it.
February 19th, 2006
Mike, I like the chart of “Oil”, but I’m a little confused. I have a stockcharts.com account, but I can’t get this chart. Any thoughts?
February 19th, 2006
Nick, the ticker is $WTIC
Space4u2go, I should be more clear, as with all my ‘calls’ I’d wait for confirmation before entering. In this case I’d look for the stock to drop under Friday’s low to short it. It it kept climbing and still looked weak (bearish candlesticks, etc.) I’d just keep moving my entry point up.
February 20th, 2006
Mike: Thx for prompt reply.
AIG & ATO: http://space4u2go.blogspot.com/
What do u say!!!
February 20th, 2006
Mike, I disagree. Its quite possible that the energy sector will retrace a bit here on the bounce from last week, but it is so oversold that I don’t see it giving back much. What I’m trying to say is that the probability of it continuing to bounce is much higher IMHO than a revisit to the recent low.
February 20th, 2006
any thoughts on why oil(stocks) is bearish/bullish in fundamental view?
i don’t know which side to take, but i believe it will be fun to trade/watch in the next few days.
February 20th, 2006
Hey mike,
I agree with you on the technical state of the oil plays, but do you not think that if oil rebounds (as you predict it may off its 200day), the fundamentals will quickly outweigh the technical situation for the oil service sector? I can’t see oil rebounding to 65-70 range due to technicals/OPEC/Iran with the oil sector getting crushed to newer lows..what do you think?
February 20th, 2006
IMHO there are safer and perhaps even more profitable investments to be had than shorting in the oil patch. OPEC will be cutting production in the next cycle and that is going to drive up consumption. We and the Europeans are going to be entering the vacation season in the next couple of months which drives up demand. The next hurricane season could totally wipe out the Gulf production (Katrina was just a prelude). And the darkest cloud on the oil horizon is the new Iranian oil bourse to begin in March. When that comes Iranian oil will be priced in Euros. I don’t know what kind of hit that will make with any of these stocks but I do have a feeling there will be some chaos.
Bottom line - if you can’t make a case to go long I wouldn’t be in the sector.
February 20th, 2006
Thanks for all the comments folks… All thes differing opinions is what makes a market.
Chris — fundamentals? What are those?
Actually, I rarely trade oil stocks (which is why I missed that 20% drop) b/c they are so affected by news and those damn inventory reports. I don’t even think the folks who specialize in trading oil can give a good fundie outlook. Every week when those reports are released oil whipsaws like crazy as the crowd tries to make heads or tails out of the report…
Jeff, I honestly have no clue.
John, I’m not sure why this trade is less safe than any other. From a strictly technical standpoint the setup in VLO looks like a good risk/reward setup to me. Short it if it starts to drop and put a stop somewhere around that trendline. I don’t see what makes that any more dangerous than any other trade.
Anyway, I never suggested that oil or the oil stocks are long term shorts. All I’m saying is that in the short term it looks like they have another leg down. Whether that means try to short here or wait for the drop to get long near a longer term trendline is in the eye of each trader.
February 21st, 2006
Why bet against one of the most bullish sectors ?
After all oilers PE’s are low , I do think that oil will be irelevent economically in about 7 - 12 years but that another story…
February 21st, 2006
For profit! Are you saying that you wouldn’t have taken that 20% gain in 8 days by shorting on Feb 1st? I’m not “betting againt” oil just for kicks or to try to be a contrarian but b/c I see a bearish pattern in the chart.
However, after reading all these comments I’m starting to think that maybe sentiment is too bullish.
February 21st, 2006
I will just chime in that despite the short-term bearishness that I saw in many charts, I am long-term very bullish on the oil and gas patch (as well as commodities in general). But I would caution all you fellow bulls out there that the Fed is trying to get on the case and will do its best to kill off economic activity enough to get these prices back down. I don’t think it will work too well, but I am also not going to fill up with hubris over it!
March 4th, 2006
hi mike..thank you for your site and all of your chart analysis. I have a question on fundamentals..is there anywhere i could read about a companies financial performance prior to their releasing earnings?
March 6th, 2006
Pat,
I’m not sure what you’re asking. If your’e asking about the performance for the quarter they’re about to report then the answer is no. FOr historical info check the company’s investor relations site or Yahoo finance, etc.