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XLE Re-entry - Exit

XLE Daily

XLE 3 minute

At 9:34am ET I Tweeted "Sold our long $XLE #XLE position. Details later.". Here are the details:

We opened gapped down, then filled the gap. Then we started back down, as you can see on the 3 minute chart. I have seen, many, many times, when this price action occurs, you get a continuation to the downside. It seemed very likely that we'd drift back down to the Trend Line and reverse back up.

Since we're using options for this trade, we're losing value daily due to Theta time decay. Plus, options are leveraged instruments, so we'll lose value in our position much faster than the underlying ETF. So, why go for that ride down to the Trend Line, and possibly much further down if we don't bounce off of it. Its better to exit now and wait for the reversal off the the Trend Line. That's why I sold the options.

However, look how we closed on the Daily chart. Today's candle combined with yesterday's forms a Piercing Pattern candlestick pattern. This is a Bullish signal, except its usually actionable when Stochastics are oversold. Currently we're barely out of overbought territory, nowhere near being oversold. 

Still, a Piercing Pattern plus a close above the 8ema, and every other Moving Average we track, as well as the recent Bollinger Bands/Keltner Channel Squeeze Breakout, makes me think it would have been better to wait until the end of the day, as I usually do.

I thought about getting back in long at the end of the day, but its bad to get caught in a sideways thrashing price action. So, I decided being out is probably the best choice. There's still plenty of runway to get back in long if we want to when the setup looks worthwhile.

For now, here's trade result:

XLE Mar 95 Call

Bought at 2.55 1/9/23, sold today 1.64, loss -$91. 

Bought at 1.99 1/9/23, sold today 1.64, loss -$35.

Total -$126/454=-28%.

XLE Re-entry - Update 3

XLE Daily

Now the buy/sell/hold decision is getting harder. We had a significant down day on decent volume. Today's and yesterday's candles formed a Left/Right Combo candlestick pattern. Stochastics are still high and there's still a tiny little gap below us. It's not unusual at all for a breakout to do a small reversal and test the breakout level, or in this case, the Trend Line. These can indicate a bearish move of about 3 points or so, down to the Trend Line, which is coincident with the tiny gap.

On the other hand, we found support at the 50sma and 8ema, which happen to be coincident today. This could suggest a reversal tomorrow and continuation with the up trend.

It seems like a 50/50 bet from here. But since we're in an uptrend, and we found support, and not closed below the 8ema, I decided to hold the position.

XLE Re-entry - Update 2

XLE Daily

Well, you can see we had a higher high and higher low today, and we closed above the 3ema. Also, you can see the Bollinger Bands are blossoming outward. These are good bullish indications.

However, we closed near the bottom of the candle, and Stochastics are extremely over bought. Also, we are coming into a previous congestion area from the month of November. These indicate risk of a reversal. If we do reverse, then it'll be a question of how far.

It looks like we might be at an inflection point. We'll probably find out this week. We still have a distance to go to get to our 102.50 Target.

XLE Re-entry - Update 1

XLE Daily

Looking good today! After bobbling between the downward Trend Line and the 50 SMA for a few days, we gapped up at the Open above the 50 SMA and stayed above it all day. We had decent volume, decent size green candle, and looks like we got a Bollinger Band/Keltner Channel squeeze breakout to the upside. We closed above all Moving Averages and closer to the top of the candle than the bottom. All this is bullish.

Unfortunately, we also entered a previous congestion area to the left, and Stochastics are now in the overbought area. We closed a little stretched above the 3 ema and 8 ema. These provide bearish pressures. It would be reasonable to have a pull back and retest the downward Trend Line.

Strangely, while our energy ETF is looking bullish, the Feb. crude oil futures has a bearish setup. I tweeted 15:47 ET today "Oil Futures Mar 4hr showing tweezer top near 78.6% Fib and a Gartley D point.". Initially, this seems like a contradiction, but we're dealing with apples and oranges. The XLE is an ETF constructed by equities, and the CL futures is the actual crude oil commodity itself. So, its perfectly reasonable that these two will sometimes diverge.

CL Mar Oil Futures 4hr Chart

I decided to hold the XLE long position since it appears the bullish indications beat the bearish ones, and we have now resumed the general upward trend.

(We also shorted the March oil futures, but that's a different trade.)

XLE Re-entry

XLE Daily

See my Jan. 3rd post for our exit from the XLE Bullish trade. On Jan 6th, the previous trading day before today, we gapped up and broke through the downward trend line, then closed slightly above it, after rejecting off the 50sma. Breakouts from triangles usually occur near the apex of the triangle, which is exactly where we are.

Today we confirmed the breakout by gapping up again at the open. The scary looking big red candle today is actually exactly what you want, because when price retraces and retests previous resistance it just broke through, then resumes the breakout direction, that is a strong bullish indication. The fact that we gapped up twice in a row makes the retest even more bullish.

However, while we broke through, gapped up, and retested, we haven't yet resumed the breakout direction. We'll be watching to see if that happens. If we continue downward into the big triangle that formed, our situation will be become uncertain.

But we don't want to exit too quickly because there's another gap just below us. Gaps want to be filled in. So we have to be flexible and patient enough to let that gap be filled and price to reverse back upward. We'll just have to deal with the hand we're dealt.

Also, notice the Bollinger Bands came inside the Keltner Channel, forming a BB/KC Squeeze. Today it looks like we're just about to see a BB/KC Squeeze breakout. If we trend higher and get that BB/KC Breakout, we'll be golden. That should give us typically at least 5-7 candles to the upside.

This triangle we just broke out of is a classic bullish continuation pattern with the expectation to continue the trend it interrupted. However, in my experience, and that of others, triangles can be treacherous. Its not uncommon to breakout one way, then retrace through the triangle and hit the Stops that are likely hiding on the other side. Then the bears will enter short and put their Stops above the triangle. Price action continues a bit to attract the bears, then whipsaw back upward and take out the bear's Stops. You'd think ok, if that happens we can get back in long, but often the price returns to the apex and meanders sideways. When this happens, everyone but the dreaded market makers lose money. No fun.

But a triangle is what we have and no telling whether it'll behave as it should or not. So we have to participate as if the breakout will workout well for us, but be ready for the rug to be pulled out from under us.

At 10:13 am ET this morning I Tweeted "Bought XLE Mar 95 Call for 2.55 when XLE was 88.88 due to breakout.".

At 2:45 pm I Tweeted "Bought another XLE Mar 95 Call for 2.00 while price is testing the down trend line.". It was actually 1.99 but 2.00 just seemed more appropriate for the Tweet.

Normally, you don't want to dollar cost average into a losing position. You want to add to your position when its working, not when its not working. However, my intention wasn't to dollar cost average per se. The price action had stalled right on the trend line, which would normally suggest price is about to reject off support and reverse back up. That's what I expected and if I knew this was going to happen I would have entered there rather than 88.88. So its a perfectly good idea to add to one's bullish position at a level where you have good reason to expect support.

XLE Looks Positive - Exit

XLE Daily

Tough decision today. We closed closer to the low than the high, below the 8ema on high volume. We never got over the downward Trend Line, not even on an intraday basis. Stochastics are still above the mid-range, so there's plenty of room to fall further before worrying about being oversold.

But on the other hand, we're still in the congestion area and haven't broken out to the downside. We could easily reverse this price action tomorrow. Plus we're in an option, so our risk is fixed to the cost of the option.

Bottom line, given the relatively larger candle and higher volume, and the clear resistance from the Trend Line and the 50sma, and the priority of capital preservation over "being right", I decided to take a small loss to avoid taking a bigger loss.

Of course, we can always buy back in if appropriate. To that end, I set an alert for when XLE >= $89.

Summary:

XLE Mar 95 Call bought at 2.22 on 12/21/22, sold 1/3/23 for 1.58

158 - 222 = -$64 per contract.