IS THE BOTTOM IN FOR ENERGY STOCKS?
November 21, 2019
The charts for now say yes, and point to a major low in the Energy sector. The Energy sector has underperformed the broad market considerably year-to-date, with the S&P Energy Select Sector SPDR ETF (XLE) +4.67% YTD, and the S&P Oil & Gas Exploration & Production SPDR ETF (XOP) -20.84% YTD vs. the S&P 500 ETF (SPY) +24.15% YTD. This downtrend is starting to reverse, as many Energy stocks are trending higher, some recently hitting new 52-week highs and the major ETFs are showing signs of a longer-term bottom. Starting with the ETFs and two Majors:
Energy Select Sector SPDR Fund (XLE)
XLE, closing price $60.03. XLE has put in 4 higher lows since August 2019, and has held over $55 on the last three tests of this range. This ETF is comprised of the major integrated leaders, with 43% of assets in two names, XOM and CVX. XLE has failed on the last 6 attempts to reclaim the 200-day moving average. The $55 level is key support here and if XLE can stay above that level, it is the low for now.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
XOP, $21.00, has a smaller average market cap, and is more diversified than XLE, with the top 10 holdings having a 27% weighting in the ETF. Although much weaker year to date, the ETF has tested the $20-$21 range 6 times since August 2019, and the $20 level has held each time. The $20-$21 level also served as the major low in 2008 and 2009, after which XOP recovered to over $79 in 2014. $21.31 was the major low in 2016, and it recovered to over $43 later that year. The key level here is that $20 needs to hold on a closing basis, if not, that would be a clear sell signal. A close under $20 would equate to just less than a 5% stop from today’s close. The potential upside, if it starts to turn higher, could be significantly higher than 5%.
EXXON MOBIL (XOM)
XOM, $69.67 is the market cap leader in the industry, at $297 billion, but is trendless for now. If the industry turns up further, than XOM should participate, but is trendless for now, and has failed on the last 3 attempts at the 200-day moving average.
CVX, $118.77, is only 5% off the 52-week and all-time high, but has traded in a range over the last year. A close above $125 would be bullish technically and signal a new all-time high.
PRICE LEADS THE WAY
I have long been a firm believer that price is by far the most important data point. As the table below shows, many of the energy stocks in my focus group of 20 names have had very strong quarters, led by MPC at +38.2%, and all 20 are up off the 52-week lows, with HES leading at +87.9% from the low.
Following are large cap names of interest:
Phillips 66 (PSX)
PSX, $118.77. Refiners have been the strongest in the group and PSX is just below the 52-week high.
VLO, $98.41, is also just below the 52-week high, a bullish technical sign.
Marathon Petroleum (MPC)
MPC, $63.24, is 9.2% below the 52-week high, but recently held the rising 50-day MA, a bullish sign.
Hess Corp (HES)
HES, $66.91, is 9.7% below the 52-week high, and is trending higher.
Conoco Phillips (COP)
COP, $60.21, has 4 higher lows, and reclaimed the 200-day MA today, both technically bullish signs.
Murphy Oil (MUR)
MUR, $24.16, is the only mid cap in this report. It is improving here over the 200-day MA and a close above $25 could signal a new leg higher.
EC, $18.33, recently closed over the 200-day MA and a close over $20 could signal a new leg higher.
Suncor Energy (SU)
SU, $31.68, is trending higher and just had a bullish 50/200 MA cross. A close over $34 could signal a new leg higher.
Total Fina Elf (TOT)
TOT is trending higher and above the 200-day MA.
3 CORE ENERGY NAMES BELOW THE 200-DAY MOVING AVERAGE
BP Amoco (BP)
BP, $38.59, has failed repeatedly at the overhead 200-day MA for the last two months. A close above and over $39.50 could signal a new leg higher.
Halliburton Co. (HAL)
HAL, $21.13, is showing some signs of life longer-term. 3 higher highs, 4 higher lows, and the 20-day and 50-day moving averages turning up. It is too far below the 200-day MA for me as a single name, but it is trying to base.
SLB, $36.62, has solid multi-month base with a $30 long-term support level. The 200-day MA is starting to flatten from its steep decline, a bullish signal. $39 and $41 are key overhead levels.
As those who have followed me online for years know, I focus on an intermediate to longer-term time frame, and can hold winning positions for months or years. I expect pullbacks at any time and I don’t attempt to predict that the final low is in. Stocks can reverse at any time. From a basic price level perspective, however, unless the recent lows are broken in the above stocks and ETFs, than by definition, the lows are in, for now. I allow for volatility, but do not want to see any new positions have more than a 10-12% drawdown from entry, which is my standard longer-term stop level. For stocks that have reclaimed the 200-day moving average, I want to see those levels hold.
I have been building a position in XOP over the last 4 weeks, as the ETF to me is a less volatile position to start with and have a few single names on my entry watch list right now. The refiners are the strongest sector in the energy industry on my screen, PSX, VLO and MPC. Many names have reclaimed the 200-day moving averages recently, and may offer good longer-term entry points, and HAL and SLB, as laggards now, may outperform the larger majors, if they start to trend higher.
Positions are not opinions and price is the final arbiter. We will see how this group develops over the next few months.
Posted on our Twitter feed on 11/22/2019 and on our Trend Trading Signals site.