SLB Final Target Hit, Morning Market Update

WSJ Hindsight Bottom Call on Crude

As discussed when SLB was first highlighted as a bounce trade idea/potential longer-term bottoming play in the Jan 13th Peak Oil vs. Oil Glut post, SLB, along with the other energy stocks mentioned at that time were intended as oversold, bounce trades with the potential to morph into longer-term bottoming trades/investments. That still holds true for all of the energy trade ideas mentioned in that post but personally, I have taken full profits on all the positions which have recent hit their final short-term targets, which, not coincidentally in my opinion, most of which have done so in the past several trading sessions.

In that Jan 13th post, I made what I believed to be a compelling case from both a technical & fundamental perspective that a bottom in oil was very close, using headlines as contrary indicators. This headline published by the WSJ yesterday helps to support the case that at least a near-term top in crude is close at hand.

From my experience, when I am actively engaged in trading a particular sector or even the broad market and I notice that the majority of my trades are hitting their preferred or final targets in close proximity, a trend reversal is usually right around the corner. My trading style and holding period (day trades, S/Tswing trades, L/T swing or trend trades, etc…) changes depending on market conditions as well as my desire to actively or passively engage the market at the time (trade long enough & you will eventually learn to manage trader fatigue or burn-out by reducing your engagement in the market periodically).

I came into the year primarily positioned in gold & silver mining stocks but decided to reduce exposure to the sector on Jan 20th, for the reasons discussed in the “Pullback In The Miners Likely…” post published that afternoon, also going on to short the miners later that afternoon with via DUST. The mining sector (GDX) topped the next day, providing a very timely exit on the longs and entry on the short trade. Although my original plan was to buy back into the mining stocks after a pullback, I then stated that “my gut tells me to just sit back & watch how the metals & miners trade for a while until adding back exposure to the sector.” , going on to further explain my rationale for holding off on adding any exposure, long or short, to precious metals & the mining sector in this Jan 28th video analysis of the sector.

The point that I wanted to share is the fact that my thoughts on the energy sector as similar to what they were on the precious metals when they topped a few weeks ago. Although I believe that a longer-term bullish case can still be made for crude oil & the energy sector, my gut, including my read on the charts, tells me that the easy money & quite possible the bulk of the gains on the initial oversold/short-covering bounce that I was looking for has been made. Crude oil & the energy stocks may very well continue to move higher but the odds for at least some sideways consolidation (choppy price action) at this point is quite elevated and as such, the R/R (risk-to-reward ratio) on the energy sector as a whole at this point is rapidly diminishing, at least in the near-term.

With the US equity markets still grinding sideways in the recently highlighted trading ranges, the R/R for being long or short equities in general isn’t very favorable right now either. However, gold has now fallen enough to backtest the neckline of the inverse head & shoulders pattern that I’ve been discussing for months now (click the $GOLD daily chart link on the sidebar of the homepage). I still have my concerns as discussed in that Jan 28h Precious Metals & Mining Sector video but I will spend some time studying the charts on the PM sector today and communicate my thoughts asap. At this time, my expectation is for at least an initial bounce off that backtest of support. Whether or not this will be the last chance to board the gold train before it rallies to new highs or if there is more downside to come I am still undecided. Bottom-line: Although I’d like to review the charts a bit more in depth and my opinion isn’t very strong right now, I think that gold, silver & the mining stocks may be poised for at least a tradeable rally and possibly more. With that being said, my preference overall is to keep things (trading) light for now, waiting for the next attractive R/R setup in the broad markets or any sectors/industries that stand out.