Energy Stocks Hit 6-Year Lows

JC Parets
January 9, 2020

From the desk of Tom Bruni @BruniCharting

Thank you to everyone who responded to this week's mystery chart.

Most people were sellers of this one, while some were staying away fearing a whipsaw.

With that as our backdrop, let's take a look at this dumpster fire.

Here's a chart of the Energy sector relative to the price of Crude Oil breaking to nearly 6.5-year lows after 2 years of consolidating around support. While a whipsaw or two may occur in the near-term, the structural trend in this area is clearly lower and not something we want to be buying based on the data we have today.

Click on chart to enlarge view.

So we've confirmed that we don't like the numerator of this first ratio (Energy stocks), but what about the denominator (Crude Oil) relative to the rest of the Commodities space? If we're going to be long Commodities then we may as well own the best of the bunch.

That is the other aspect of the Energy equation that I don't see being discussed, Energy Commodities vs the rest of the Commodity space.

Here's a chart of the Equally-Weighted 4 Energy Commodities (Crude Oil, Heating Oil, Gasoline, and Natural Gas) relative to the Equally-Weighted Thomson Reuters Commodity Continuous Index that we use as a proxy for the asset class. 

What we see is a multi-year top forming and prices now pressing down against support for the fifth time in the last year. The more times a level is tested, the more likely it is to break, so we're looking for a move to new lows and continued underperformance from Energy Commodities.

While this doesn't mean that Energy Commodities and Energy Stocks can't go up on an absolute basis, the current trends suggest that outperformance from them is unlikely over the coming months/quarters.

I was going to do a deep dive into the Energy sector this week, but given the volatility in Oil and headline news, I'd rather let the dust settle before drafting a longer-term piece. For now, this post outlines the two aspects of any Energy thesis that I think are most relevant for our timeframe.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team

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