This morning we woke up to skepticism over recent OPEC talks. Those talks spiked energy shares as we’ll discuss below. The take away is more volatility in the crude sector.
Despite this news, the NYSE Composite of 2000 stocks reflects bullish price action. The index closed above the 20ema in higher volume. Stochastic and RSI (not shown) are pointing higher. The lower panel depicts expanding breadth, as the ratio between 52 week highs and 52 week lows trends higher. That’s bullish short term.
We started the week anticipating back and fill action, discussing at length our thoughts in the weekend video newsletter. The catalysts which will most affect prices haven’t changed. Expect crude and sector rotation to buoy stocks in favor of the bulls, unless something changes. One thing is for sure, RSI is in a better position to assist bullish price action, compared to the elevated levels we experienced in March. Even at such lofty levels RSI and price continued higher.
VBP resistance has kept prices below 218.00 (+/-) for over three (3) months. Block resistance needs to be monitored, in this zone as you might expect, Consider the roughly 7.0 million shares (250k or greater) that were traded above 216.23 through 216.70. Additionally, there were a few 1.5 million share blocks. We do not know their positioning, nor do we care. We are bullish above 216.70 and bearish if below. Consider this resistance level when executing new trades today.
The 60 minute chart shows the bullish bias for much of September. Higher lows with higher highs. It is the latter which will come into play today. The September 22nd high at 217.53 needs to be exceeded to remain bullish. Price action may encounter resistance at the upper trend line as well. so begin to leg out of your calls as we approach. We have the 217.50 calls from MOC Monday. (fill 0.70) We recommended the 216.50 around noon, though due to surgery I did not take those.
Momentum stocks continue to rotate in and out of entry zones. The usual suspects breakout as momentum traders ride their ascent. As they pullback to their rising 9ema, these stocks will usually push higher again. Our strategy for trading these momentum stocks was outlined in a previous BLOG POST, which you can read here.
With energy shares in the news, expect volatility to increase. Many of the stocks in the energy sector as setup to follow through today. News of skepticism began this morning. Many times this type of coverage can be read as, letting smart money enter shares before they get too extended. I could be completely wrong, yet thats how I read it.
Check the stocks below for good setups. 10e/STO/MACD setup preferred. Look for rising RSI stochastic and MACD above its signal line, in bullish patterns.
Apache (APA) has been highlighted for weeks. We saw price action near the 200ma as a likely some for institutions to pick up shares and for a base to form. That is exactly what happened. The double bottom at the 200ma was pointed out several times in the trading room. Now that price action is above the 9/20ema, look to buy on pullbacks or breakouts in higher volume. APA is an example, not a trade.
Baker Hughes (BHI) is printing a bullish descending wedge. Earnings are not an issue as the company is expected* to report earnings on 10/25/2016 before market open. RSI is pushing through 50 and stochastic “might” continue higher if price action remains bullish. 52.83 or higher is the initial target, if this OPEC news is quelled. Stops 50% into Wednesday candle. A breakout of this pattern would be a “reactive” trade. Taking it before the breakout would be considered “predictive” and more susceptible to failure. Understand the difference.
Chesapeake Energy was pointed out in the room early in the week. This pattern is bullish. RSI, stochastic (STO) and volume suggest this move isn’t finished. A breakout can be traded with a stop just inside the pattern, trailing thereafter. Targets are recent highs initially. CHK is estimated to report earnings on 11/02/2016.
While energy is receiving increasing scrutiny, volatility will likely continue. Trade accordingly. Know your target and stops prior to entry. Once your candidate breaks out, watch the sector and peers for support. If the whole sector moves higher, you can expect the same reaction.
Pre-market the dollar is slightly higher along with yields. Crude is flat.
I’ll be communicating from the home office today.
Happy Trading – CV
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