Zak Mir on Hunting for Hydrocarbon

2 mins. to read

Given the way that Crude Oil has been practically flat lining either side of the $100 level in recent months, it seems that the real action as far as the commodity is concerned stems from equities related to it. Indeed, the surprise is that we are actually seeing some of the big oil & gas plays galloping in a way you might perhaps not have expected.

This point is underlined by the latest price action at Royal Dutch Shell (RDSB) where there has been a massive unfilled gap to the upside on the daily chart, something you would really not expect for such a heavyweight in the FTSE 100. The likelihood now, even after the significant gains we have already seen over the post December gains from the 2,100p zone, is that there could be one “final” leg to the upside. This call is made in anticipation of a journey to the top of a June rising trend channel as high as 2,700p. The timeframe on such a move is seen as being the next 2-4 weeks at most.

If you like volatility you will probably have already noted the recent price action at BG Group (BG.) where it has been something of a rollercoaster on the fundamental side since the end of 2012. At that point there was the first production warning from the explorer, a situation exacerbated by the situation in Egypt. The “selling climax” on the fundamental front came in the immediate aftermath of the CEO exit at the end of last month. The associated vicious bear trap rebound from below the 50 day moving average at 1,128p currently should have flagged the idea of recovery for aggressive traders, although for the rest of us the break back above the 1,144p March gap floor.

The likelihood now is that despite a significant bear squeeze already, it may be correct to expect further spikes, if only to attempt a retest of the initial 2014 resistance at 1,350p. The timeframe on such a move is seen as being over the next 2-4 weeks, with the suggested stop loss at this stage an end of day close back below the green 10 day moving average at 1,222p. Ideally, there will be no sustained price action back below the top of the March gap at 1,249p.

Tullow Oil (TLW) is a stock which even at the best of times can provide short-term traders with a hairy / volatile experience. This is over and above the periodic googlies provided by the pitfalls and triumphs associated with hunting for hydrocarbons. The technical position here is dominated by the major February – April double bottom reversal formation, underpinned by the way that the April floor was higher than two months previously. The best way forward over the rest of this month is probably to assume we shall see a continuation of the recent recovery, especially in the aftermath of the latest unfilled gap to the upside at the end of last month. The money management on this idea would be an end of day close back below the gap floor at 865p, while we target a line of resistance from November heading through 960p.

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