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 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.)