NEW YORK (Real Money) -- Back on April 23, I thought Phillips 66 (PSX) was ready to roll higher. Energy had been shaping up better and around $80, this one looked poised to squeeze much higher. It didn't happen. The stock tried to push higher, but found a ceiling just above $81, and that ceiling has stayed in place ever since. The good news was a floor held sturdy around $79. Well, the floor had held until today. This consolidation has not gone as I anticipated and now it is time to change tune and turn cautious before any real damage can be done.
This chart isn't the death knell for PSX, but it rings out a cautionary tale of breakouts. How long can you sit in a movie theater waiting for the movie to start before you get up and walk out, even if it means getting nothing for the cost of your ticket? That time is now for PSX.
Look, I can always revisit this one if it closes above resistance. We're only talking about $3 higher from where shares currently trade. The issue I have is whether or not I would be spending good money after bad waiting. Will I be buying burnt popcorn and flat, watered-down soda? That's the risk here. Check out the price action a bit closer.
You'll see we are dipping below the support of the current price channel. If this fails, we then set two resistance channels directly above price (dotted and solid blue lines). There is little clear support until we get into the lower $70's. The Relative Strength Index is signaling that momentum has switched over to the bearish side. If that is the case, then history has shown the oversold levels (below 30) have been the better long trade entries. We're nowhere near that. At the very least, wait for the RSI to get back over 50 rather than buying this in no man's land. Unfortunately, the mass index tells me there is plenty of room for a new trend to develop here and with this price action, I'm afraid it might be lower.
But what about oil? What about it? Oil seems to have no consistent correlation with PSX over the last six months on the daily chart. If we examine the bottom of the chart, we'll see some days it matters moderately while other days there is no correlation at all. This spurious correlation simply needs to be ignored. Anything a trader gleans from the action in relation to a trade in PSX and says it helped them has merely gotten lucky. Oil, at least in the short term, is not your guiding light on PSX. In fact, there are no lights on here in the theater. It's time to take my stale popcorn and head home until things start working again.
Editor's Note: This article was originally published at XXX on Real Money on XXXX.