Markets sold off hard on volume as indexes broke through the 21EMAs Thursday and followed through Friday with a big gap-down. Futures tonight are currently down over 1%. Fortunately, I noted last Wednesday that I was “back to holding a vast majority of cash while waiting for better setups and a better environment to materialize.”

That’s what happens what you let setups and stop-losses dictate your exposure levels. If setups are scant and stops are hitting in rapid succession, it’s indication that it might be time to scale back.

The energy sector was generally spared from high-volume sell-offs over the past week, and the market weakness should allow the leaders to pull back a bit, tighten up, and set up new buy points. Still, there probably won’t be much to action on until at least Wednesday/Thursday, when the Fed will be wrapping up their meeting and hosting a press conference, so expect continued volatility throughout this week. I’m keeping my mind open for anything to happen and will be watching the reaction closely on Wednesday at 2-3pm EST.

Let’s get into it!

Index Update

The Nasdaq sliced hard through the 21EMA on Thursday which immediately turned downward, showing the lack of strength on the move up. Net highs/lows are neutral-down and may turn full down if there’s a third day straight of net lows tomorrow. One red light and one yellow light indicate strong caution on long positions.

Volume finally came in on the Nasdaq as it sold down aggressively. This is the opposite of what bulls were looking for, and it tells me that the market is not ready to get back in yet. I’m watching for the support line in orange to hold over the next week to potentially indicate a triple-bottom.

The S&P-500 failed to break above the upper range resistance in orange, instead joining the Nasdaq back below the 21EMA and close to year-to-date lows. Look for those levels to hold.

Stock Updates

Diamond Offshore Drilling (DO) was up nearly 20% from the $8.26 buy point where I noted to take half off for profit and move stops up to even. It fell Friday very close to stops, but held for now.

Rattler Midstream (RTLR) broke out through the $17.50 buy point but fell back to breakeven stops with the market drawdown Friday.

CVR Energy (CVI) was a great trade that I noted to close out for around +24% average gain. Still watching this one for another setup.

Best Setups

The setups below are ideas, not outright buys; placing a trade is discretionary depends on both the price action and volume. To succeed, you’ll need to make the trade your own based on your rules for entering and taking profits, and always use a stop-loss!

Kosmos Energy (KOS) is holding up a nice pattern here just below 52-week highs, pulling back to the 21EMA on low volume. I’d look to buy a breakout through $8.50 with high volume.

Comstock Resources (CRK) is a leader in oil & gas and is consolidating just above the previous breakout point, constructive action in a downward market. I’m watching for a high-volume break back up through $21.

Profrac Holding (PRHC) is a new issue in oil & gas and looks to be setting up a bull-flag pattern off the IPO base. After a few more days of consolidation, I’d like to see very high volume come in on a move above $21.50.

That’s all for tonight! See you back here on Wednesday night for an update on our stocks.

Cheers,

Danny Deals