Leaders are Leading: Energy Stocks Break Out Again

JC Parets
August 29, 2022

These days it seems like Energy stocks are acting strong regardless of whether there is strength or weakness in the broader markets.

I'm sure you've noticed.

The Long Energy trade remains in full force if the Sector Index $XLE is above those former highs from 2016-2018:

But when we look underneath the surface to more specific industry groups, there is a lot more potential here that has yet to develop.

Look at the Explorers & Producers, for example, pushing up against those very same former highs. E&P has yet to break out.

So this is worth pointing out in the context of Energy being "overbought" or "extended". At the industry group level, you can argue that they haven't even gotten started yet.

This also suggests we could be in the early stages of this secular bull market for energy stocks, and a breakout above those former highs would confirm that this is precisely what is happening.

And we have a similar situation in Oil Services, the laggards of the bunch.

Look at Oil Services struggling with those former lows from 20 years ago. That former support early in the life of this ETF has turned into resistance:

If $OIH can break out and make new highs, the upside potential there is pretty extraordinary.

I think it helps to take a step back and really put where we are into perspective.

The short-term strength is great and everything, but where does it fall within the context of longer-term trends?

We have some great trades in the Energy Sector that are working very well. You can sort these trades by best risk vs reward using our new app: Rangefinder

If you still don't have access to it, email me here or give me a call +1 (323) 421-7910

Talk soon!

JC

 

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