Does The Energy Sector Need A Surge Protector?

Steve Strazza
January 27, 2021

From the desk of Steve Strazza @Sstrazza

We updated our Breadth chartbook a few days ago which Premium Members can check out here.

There are literally hundreds of charts with various breadth indicators from new high/low and overbought/oversold percentages to A/D lines, and more for not only the major averages and indexes but also each Large-Cap Sector SPDR.

What's this month's takeaway after spending a morning digging through our expanded workbook (that's right, there's more)?

Market internals continue to be a tailwind for stocks as we saw an improvement in the vast majority of our metrics again this month.

Last month we discussed the recent surges in new highs confirming the rally in Small-Caps and breakout in Technology $XLK. Seeing internal strength like this from leadership groups makes sense.

Seeing it from laggards though is definitely not as common.

But as Grant and I cycled through the charts this weekend we noticed just that. Large-Cap Energy $XLE just printed a bullish initiation thrust in its percentage of new 6-month highs indicator.

As we've discussed in our breadth posts time and again, these extreme readings tend to occur in the early stages of new bull markets. You're probably thinking... "right, but that can't possibly be the case for Energy stocks."

I'm just as surprised as you are, but we can only interpret the data that's in front of us... and right now, this is what it looks like:

So, yes you heard that all right... Energy stocks could be gearing up for a new cyclical bull.

And this isn't just any extreme reading, more Energy stocks are making new highs right now than they have at any time in the past decade.

So, we can't help but pose the following question:

If even the weakest sector in the US is entering a new bull market - or even showing signs of entering a new bull market... what kind of argument do the bears have left?

We've been saying we can't find any shorts. And while this doesn't mean we don't want to be taking profits at our price targets as we would in any environment, it does mean that our focus should be on buying and not selling stocks as much as ever right now.

Just look at how shorts have performed in the past few weeks/months. The most heavily-shorted, "worst stocks" in the world, have been some of the best performers recently.

This is simply a dangerous environment to bet against stocks in.

We discussed this topic of short-selling a bit in this week's RPP Report.

We'll also be putting out a special short-squeeze report later in the week which we're really excited about, so be sure to look out for that.

In the meantime, let us know what you think about this bullish development for Energy stocks.

A new bull market!? Are we crazy..?

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Allstarcharts Team

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