Thursday, July 10, 2008

XLE Trade Setting Up



Oil stocks have been pulling back within an uptrend so I am looking to buy this dip. Above is a daily chart of XLE along with volume and stochastics.

Notice how volume has increased in XLE the past few days which in my opinion is a sign of a bottom. The last time I was bullish on XLE was back in January where I took a long position and it turned out to be a huge trade. You can read about that trade by clicking here.

Notice also how the stochastics are in the buy zone and how XLE is sitting right on support. I think the combination of having a pullback within an uptrend, technical support, increasing volume and oversold stochastics all indicate to me that a bottom or buying opportunity is at hand. My entry to buy is if Wednesday's high is taken out.

As always, nobody knows what the future will bring so use stops and proper money management. We'll see what happens.

10 comments:

Adam said...

Is your requirement to take out Wednesday high of 83.19, at close or can it be intra day as well?

Where do you recommend the stop at-around 79, which is the support as well as today's low?

Kevin said...

If XLE takes out Wednesday's high intraday by a few ticks, I will buy it and place my protective stop below today's (Thursday's) low.

michael said...

kevin, what kind of position sizing system do you use? % based or ATR volitility based or something else?

Nefri said...

I am new to the trading "lingo". What does "take out" mean in "If XLE takes out Wednesday's high..."? Does this mean if it goes above the high or drops below?

My being bilingual probably doesn't help.

Kevin said...

Hi Michael,
I base my position on the size of my trading account.. I usually like to risk around 2 to 3% of my account value.

Hi Nefri,
In this example "takes out" means moves above Wednesday's high. If XLE can trade above Wednesday's high, I will be a buyer.

Adam said...

Kevin,

Can you explain what your logic is in waiting for this trigger, even though XLE has held support at 79, for the past 3 or 4 days? In other words, why do you look for additional confirmation before pulling the trigger.

Thanks a lot,

Adam

Gary said...

You might want to be careful with the oil stocks. Both the XLE and OIH have broken their trend lines.

All the oil stocks are now diverging from the price of oil and have been for some time.

In bear markets everything eventaully gets taken down. This will include energy stocks.

It seems pretty obvious that the world is sliding into a recession, probably a pretty nasty one. This has crushed energy demand every single time. I really don't think this time will be any different.

Look at the coal stocks they've already broken badly and now natural gas has broken the trend line.

What makes me even more nervous is that everyone seems to think that the energy stocks are going to be a safe haven from the bear.

When everyone is thinking the same thing, then nobody is thinking.

Kevin said...

Hi Gary,

You made some good points. I haven't bought any oil as of yet. My only long position is in the Euro and gold. If I do buy XLE, I will have a very very tight stop so the risk will be small.

Kevin said...

Hi Adam,

I like the market to prove that I am right by taking out the highs of the last few days. If the market can't do that, then i don't want to own it. I need to see support hold and then some buuying come into XLE before I put my money on the line.

sk said...

Kevin, XLE traded higher this morning by taking last Wednesday's high. It is trading lower now (11:42 AM ET). Did you do the trade?

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