From the desk of Tom Bruni
I know you’re probably tired of hearing this intro over and over again, but to start this post I want to reaffirm that at Allstarcharts we remain in the camp that stocks in the U.S. and globally are headed higher. Normally we focus on the sectors that are leading and making new all-time highs, however, the Oil & Gas Exploration & Production ETF $XOP is breaking out of a multi-year consolidation, signaling a new intermediate or long-term uptrend is beginning. As a result, we want to see which names in this space present the best reward/risk scenarios to take advantage of this thesis.
After a failed breakout to new all-time highs in September 2014, the Oil & Gas Exploration & Production ETF fell roughly 70% and found a bottom at the 2008-2009 lows near 23. Since then, prices have been consolidating below resistance in a symmetrical triangle pattern, which represents a period of indecision between buyers and sellers. Last month, prices finally broke decisively to the upside and are now testing potential resistance near 43-44. Breakouts from these large periods of indecision often lead to new long-term trends developing, and I think that’s what we’re seeing here. As a result, we want to be looking deeper into the components of this ETF to determine the best way to capitalize on this sector’s continued strength.
Click on chart to enlarge view.
The sector is breaking out relative to the S&P 500 as well, which is another reason we want to be looking at it.
$EOG is the first name on our list, breaking out of a nearly 4-year base just this week. As long as prices are above 118 we want to be long and taking profits up near 156, at which point we’ll reevaluate.
Diamondback Energy – $FANG has been holding up extremely well as it works through resistance at 132-133, making higher lows each time it pulls back from that level. Once prices get above 133 we want to be long and taking profits up near 161-164 where our price targets for the larger 2014-2016 base and smaller 2017-2018 base meet.
$MPC has been an absolute monster along with the rest of the refiners, but put in a failed breakout above 79 and has been consolidating since. If prices get back above 79 we want to be long and taking profits near 110.
Matador Resources Co. is breaking out of a 4-year base here, so we want to be long above 30 and taking profits near 41.50.
$REGI has done absolutely nothing since early 2013 and is now back at the top of its 5-year range. If prices can get above 16.50 to make new all-time highs, we want to be long and taking profits near 23.
Lastly, RSP Permian Inc. broke out of a 1.5-year base in mid-April and is now retesting the breakout. As long as it holds and prices are above 47, we want to be long and taking profits near 58.
The Bottom Line: After a long period of indecision and relative underperformance, The Oil & Gas Exploration & Production ETF $XOP is finally breaking out to the upside and confirming a new long-term uptrend. Many stocks within the sector have spent years making no progress and are now finally breaking out to the upside. Normally we focus on sectors showing relative strength and hitting new all-time highs like software (premium), but every sector has its day eventually (see retail) and it looks like these energy names are finally ready to participate in the broader market’s rally.