This column was originally published on RealMoney on Jan. 24 at 9:01 a.m. EST. It's being republished as a bonus for TheStreet.com readers.
One group of stocks that continues to look strong is the oil and gas stocks. While the price of heating oil has taken it on the chin, several stocks remain pretty strong.
But will they hold up if natural gas prices continue to decline? I believe it depends on the stock.
One of my long-time readers asked me about
, which I have been highlighting on occasion over the past year or so in
I accumulated some shares in the summer of 2004 and have followed your discipline and peeled off half the shares on the way up. With resistance now at $52, it looks to me like a high-volume break above that level is a Fitz Textbook Breakout back to $60 ... but a failure drops the support clear down to $45. What's the deal?
First, congrats for lightening the load on the way up. That's a tough one for many traders, who think, "If I'm selling some now, then shouldn't I be selling everything? And if I'm not selling everything, then that means I expect the stock to move higher, right? So why should I sell anything at all?" That tends to be the argument against selling into strength.
It's a weak one -- if you absolutely know what a stock is going to do, then load the boat and get rich. But if you agree that stocks are a speculative game, then take chips off the table whenever you can.
Now let's look at EnCana, in consideration of C.M.'s comments, and then we'll look at some other stocks in the sector, including
First, note that EnCana really peaked in the last week of September. From there it's been choppy. But the long-term uptrend is certainly intact. I agree with C.M. that a break above $52 would be a great breakout. It's a higher high that follows a higher low. That's a resumption of the uptrend, and gives us a clue that the last four months of sideways action have been more profit-taking than bona fide distribution of the stock. But a failure to break above the February high would be my signal to move out of the stock. Such a lower high would likely bring out more selling.
XTO is one of the steadier uptrends in the group. Notice how, with the exception of last May, the stock has been tracking along the middle Bollinger Band? Each time the middle Band (the 20-period moving average) is tagged, demand pushes the stock higher. I've highlighted the one obvious dip beneath the support line, but even that decline was followed by substantial buying interest. What's the play now? I'd wait for the stock to pull back to the middle Band before buying. If you buy now, you risk the stock declining almost 10% before the middle Band is tested. That's a big price to pay just for the privilege of knowing whether the middle Band will once again support the uptrend.
Suncor has been a bit volatile, just like the other stocks in the group. Once again, the middle Band seems to hold as support. The real breakout occurred at $60, as the bulls took the price above last year's high. However, the real bottom occurred down at $50 on a high-volume reversal. That puts the stock a full $25 above the start of this run. That's a tough buy. Instead, I'd wait for a bit of a pullback -- then I'd buy.
GMX Resources is just now breaking out of this volatility squeeze on heavy volume. I'd keep a stop just beneath the breakout point -- if it falls back into congestion, the stock has more work to do.
Encore has been consolidating for the past several months. Perhaps the stock is rolling over, but I see volume thinning out. That tends to occur during consolidation rather than reversals. But I'd still keep a stop beneath $30.
Be careful out there.
Dan Fitzpatrick is a freelance writer and trading consultant who trades for his own account. His columns focus on quantitative strategies for trading and investing. Fitzpatrick has lectured throughout the U.S. on the proper use of technical analysis and options trading. At time of publication, Fitzpatrick held no position in any stocks mentioned, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.