On Wednesday, TPA told clients that it was time to sell a basket of Oil & Gas E&P stocks and we are reiterating that stance today.
The main points from the 5/20 reports are:
1. CRUDE OIL @ RESISTANCE– Crude has rallied from negative to 34-35 and that is important technical resistance from the March break down (charts 1 and 2 below)
2. E&P @ RESISTANCE – The 7 O&G E&P stocks (CVX, HES, CXO, VLO, COP, EOG, and PSX) in the basket have all rallied back to resistance from their March breakdowns. Charts 3 and 4 below show the technical issue with the index of the 7 stocks. They are right at stiff resistance after huge rallies.
3. VERY OVERBOUGHT – The table below shows that the average rally of the 7 stocks from their lows on 3/18/20 is over 69%. Individually the stocks have rallied between 43% and 92%. In the same period the S&P 500 is up juts 21%.
The final table shows the entry point for the E&P sales that were done VWAP on 5/20.
These stocks should still be sold at current levels.
The entire 5/20/22 recommendation to sell Oil & Gas E&P stocks is at the bottom of this report.
TIME TO SELL A BASKET OF Oil & Gas STOCKS (5/20/20 Report)
As TPA explained in the 5/19 World Snapshot, both Crude (WTI) and XOP, the Oil & Gas Exploration & Production ETF have had huge rallies from the March lows, but are now at or near technical resistance from their early March break downs through important support levels. XOP was down almost 3% yesterday – after TPA’s research note, but there is most likely more downside for the ETF and the subsector. TPA recommends selling a basket of O&G E&P stocks with a target P&L of +20% and a stop of -6%.
A table of E&P stocks is below. The basket is comprised of 7 E&P stocks: CVX, HES, CXO, VLO, COP, EOG, and PSX, and the table of all the XOP holdings can be found at the bottom of this report. The basket stocks are the larger stocks in the XOP, with market caps of $10 billion or greater.
As shown in the table below the time period since 3/18/20, the S&P500 and XOP were up 21.89% and 65.28%, respectively. The average price change for the 7 stocks in the S&P basket has been +70.09%.
The first 2 charts below examine Crude (WTI), which fell below important 2 ½ year support in early March and then plummeted to trade at a negative price during expiration. Crude has now rallied, but is facing stiff resistance from the early March break.
Charts 3 and 4 show the O&G E&P short basket. The basket broke 2 major support lines before plummeting to its low on 3/18/20. Consequently, the basket rallied as much as 72% from the 3/18 low before pulling back slightly. The basket is still very vulnerable given its huge rally and proximity to technical resistance.
Charts 5 through 11 show the individual stock charts for CVX, HES, CXO, VLO, COP, EOG, and PSX. Each stock has rallied between 52% and 88% and is not facing technical resistance. These stocks are very vulnerable to a pullback at these levels.
TPA will use today’s VWAP was cost for this trade.
Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.