Crude just had its worst day in five months, and one technically minded trader who has had a hot hand calling crude’s next move sees even more trouble.
With crude hitting below $46 on Thursday for the first time since Nov. 30, Todd Gordon of TradingAnalysis.com said the commodity may retest old lows from 2016. “That opens the door to not only lower $40s, but possibly into the $30s,” he said Thursday on CNBC’s “Trading Nation.”
Indeed, West Texas Intermediate continued the slide Friday, slipping to $45.36.
Gordon sees crude possibly dropping back down to its summer 2016 low, which sat at around $39.30. But according to the trader, crude itself won’t be the biggest victim of its plunge. Gordon has made bold and correct calls on oil in the past. In November 2015, Gordon correctly predicted that crude would touch $26 a barrel.
Now Gordon has his eye on a plunge for oil and gas exploration stocks. Overlaying a chart of XES, the ETF that tracks oil and gas service and equipment stocks, over a chart of crude, Gordon points out that XES has already fallen below its summer 2016 lows compared to crude, which is “still a good $5 to $6 away” from those summer lows. In other words, Gordon believes that oil service and exploration stocks are underperforming crude and therefore in a more precarious position should oil continue its fall.
And within XES, there are two stocks in particular whose charts Gordon describes as “terrible.” The first is Halliburton, which Gordon says has broken below an “uptrend support” that had been in place since March 2016. Technicians often look at trend lines for direction on a stock’s next move. Now that Halliburton is below that “support” line, Gordon believes it will serve as “resistance” at around the $49 to $50 region, implying that Halliburton has more room to drop.
The second stock that has Gordon worried is Diamond Offshore. Gordon points out that a “head and shoulders pattern” had formed in the past few months, but that the stock has fallen below the “neckline” of the pattern at around the $15 region. As a result, Gordon believes that $15 is no longer “support” and that “a downside is certainly in play” for Diamond Offshore.
“As long as that crude oil continues down into the $40s and $30s, these underlying stocks are going to have some problems,” concluded Gordon.
XES has actually plunged more than 25 percent this year, while oil has only fallen 15 percent year to date by comparison, including Thursday’s plunge.