@zozotrader on Twitter thought it would be a good idea to look at the charts of the refiner stocks tonight. They pretty much all have similar chart setups. So, let us focus on HollyFrontier to keep this concise.
What we are seeing with the refiners right now is a familiar setup that has presented itself many times since March 2009. A sector enjoys a powerful bull run, shows signs of aging, and then appears to be on the cusp of a complete wipeout before bulls arrive at the last minute to stabilize the group and turn them back higher. Now, bulls have not yet done with that the refiners currently. But that type of action is often why bears who are neither nimble nor disciplined are often so deplete of capital and confidence by the time the new bear market actually and eventually starts that they are basically scarred forever as traders, unable to capitalize on their (ultimately) correct prognostications.
Indeed, in a bull market one man’s bear flag is another man’s V-shaped rally.
Specifically, the daily chart of HFC, first below, shows heavy sell volume taking price down with it since March of this year. The 50-day moving average is clearly declining, and even the major 200-day moving average is no longer rising but instead smoothing out. In sum, the stock is in a clear downtrend and looks atrocious.
Taking a step back and looking at a multi-year chart on the weekly chart, second below, the picture is not quite as bleak. HollyFrontier is still holding well above its major 2012 breakout at $36, and clearly is still operating within the context of a wild bull run since the 2009 lows when it printed $8.35.
A deeper correction from current prices could reasonably target $36 (light blue line) without much damage being done to that multi-year bull run.
But perhaps the larger issue here is whether shorts will even bother shorting this, with this type of blatantly bearish setup which has so many times burned them via V-shaped rallies since 2009. And the same might be said about the broad market, with the S&P 500’s now famous major trendline breach and retracement. For it will only be when they, by and large, dismiss, out of hand, the idea of aggressively playing a bear flag breakdown that it may actually prove true.
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You are right. One reason for the volatility is there are no meaningful shorts.
Interesting to see how it plays out…
Chess, you can turn a phrase with the best of them:
“But that type of action is often why bears who are neither nimble nor disciplined are often so deplete of capital and confidence by the time the new bear market actually and eventually starts”
Classic line. Very perceptive of you, too.
Thanks, sir.
HFC long, looks good.