Part two of our look at the Energy Sector focuses on the E&P companies. We will take a look at a couple examples of stocks that have triggered buys as well as some possible setups to keep an eye on. We have discussed the two elements of these Trend Transition trades, one being an initial rally off multi-month lows, the second being the 10, 20 and 30 day moving average crossover. However, we do not need both present when looking for new trades. A trade can trigger solely off an initial rally off the lows after a pullback, or primarily on the moving average crossover and a pullback. Note however, the stock can only trigger a trade when it resumes the uptrend AFTER the pullback. The stock should never be purchased if this does not occur. With that, lets take a look at a few charts.
OIL/GAS EXPLORATON & PRODUCTION– This chart will look nearly identical to the Oil/Gas Equipment chart we looked at on Saturday. We see an initial rally off 18 month lows along with a tight, constructive MA crossover that signals a possible change in trend going forward. Also note on this chart, that the sector made the same attempt back in July, the only differences were that the crossover was not quite as tight, but more importantly we never got the follow through to the upside after the pullback that is needed to trigger a trade.
OAS- Oasis Petroleum shows how looking across the charting landscape in different time frames can reveal more areas of support and resistance and perhaps increase the odds of success. Here will first look at a longer term daily chart that reveals a double bottom over the course of 13 months.
Now we will zoom in to take a closer look at the daily chart that shows a long trade that triggers off a simple moving average crossover as the stock slowly carves out a saucer type base along the lows. The trigger point also coincides with resistance near $8.40. Also note that it only took a one bar pullback with the stock triggering the next day.
MRO- Marathon Oil presents a possible trade and perhaps a more realistic picture of what we are faced with as traders. The stock does present the elements that we look for, but may be a bit more fuzzy. We have somewhat of a rally off the lows and a definite good looking MA crossover. The problem? Firstly, our pullback bars do not give us lower lows, which is preferable, only lower highs. Secondly, when the trade triggers, we will be faced almost immediately with an area of resistance near $13.00. Do these addition elements negate a possible trade? The answer is maybe, if the sector becomes super hot perhaps the nearby overhead supply becomes more manageable only time will tell. Most charting landscapes are littered with potential pitfalls, only experience can help us identify and navigate these issues and hopefully increase our odds of success.
CRZO– Carrizo shows another example in the same vein. We have a stock coming off multi- years lows with an initial rally that shows a nearly 30% gain before the stock makes a constructive two day pullback. Additionally we see a MA crossover developing, so far so good. However a quick look shows resistance near $15 so what do we do? My instinct here would be to wait until the stock clears the resistance level before initiating a position. Keep this one on your watch list.
RICE- Lastly, we will take a look at Rice Energy on a weekly chart, an newer issue that may be setting up for a potential breakout. There is a brief area of overhead supply between 30 and 34 from shortly after the stock debuted in 2014, but this may not present much resistance by now. Put this one your watch list.
Other notable stocks that should be on your watch list are, SM, RRC, NBL, DVN, HAL, HESS, PDCE, APC. If you miss an entry on these Transition setups, don’t fret. If the sector remains hot these stocks may present Trend Resumption trades in the near future. Stay diligent!