Hey Energy, It’s Your Turn Again
- Posted by JC Parets
- on March 30th, 2012
Here is this week’s post for SFO Magazine:
Friday, March 30, 2012
By J.C. Parets
It’s time for energy to step up again. No doubt about it.
Two months ago on Feb. 3, I wrote that the underperformance and base-building in the Energy space could be a blessing in disguise. The stocks that make up the Energy Select SPDR Fund ($XLE), have massive market capitalizations and therefore have a major impact on the direction of the S&P 500.
Energy stocks wound up rallying for most of February, crude oil futures broke out to the highest levels since last May, and the S&P 500 made new 52-week highs. The sector rotation we were waiting for came just in time, and the major averages certainly benefited.
Now it’s energy’s turn again. Natural gas prices have broken down to the lowest levels in over a decade, and crude oil futures have corrected as much as 7.5% from the highs earlier this month. The energy stocks have suffered in the meantime. In fact, a lot of the S&P 500 sectors are still in overbought territory, but just 16% of energy stocks are above their 50-day moving averages. So energy stocks actually have managed to get down into oversold territory. (See Bespoke)
Since the highs in late February, $XLE has come down about 8% back to the original breakout level from two months ago. The 200-day moving average and 50% retracement from the December to February move is just under $70. With prices currently above $71, we see support for several of these reasons, with the most important coming from former resistance in the fourth quarter and early January.
I mentioned two months ago here on SFO magazine that this break out in energy could be huge for the S&P 500. It was then, and it is now. I think that another rotation into energy is critical for S&Ps to go on to new highs.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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