Energy Economies Are the International Leaders

From the desk of Steve Strazza @Sstrazza

Crude oil is at its highest level since 2014 after it took out resistance around 76. 

Energy stocks just ripped off of support and are back above a key level of resistance, trading at highs not seen since early 2020.

Economically sensitive commodities and cyclical stocks, in general, remain very well bid. 

Meanwhile, the mainstream media is hung up on narratives surrounding stagflation and the possibility of a global recession. But we’re just not seeing this at all when we look at price. 

Risk assets are performing as well as they have all year. And, when we look outside the US, while there’s definitely been selling pressure around the world, the areas that stick out all seem to have something in common.

The energy-dependent countries are showing leadership. 

This supports the recent price action from energy futures and stocks, many of which have been ripping to fresh highs.

In today’s post, we'll take a look at some international equities we can use to express a bullish thesis on higher oil prices -- and higher prices for risk assets more broadly.

In recent weeks we've witnessed a shift in leadership as investors reallocate out of growth and into value. This makes sense considering the risk-on action we’re seeing across asset classes.

We wrote about the implications of a rising rate environment and the areas we want to be invested in under this scenario.

Long story short, we think the best place to be is in cyclical sectors. And one of our favorites right now is energy stocks -- both in the US and abroad. 

We’ve already covered what’s going on in the US, so let’s take a look at energy stocks around the world and see if they’re participating in the same way.

As always, thanks to everyone who participated in last week’s mystery chart.

The chart was the Saudi Tadawul Index with about six years of price history. Here’s what it looks like today:

Saudi Arabia is a great example of a country that benefits directly from higher oil prices.

Price broke out of a multi-year base two months ago and has held firm above this crucial level ever since.

When we take a step back and overlay it with crude oil, we can see just how strong the relationship is between the commodity and these stocks.

Both are trading in tandem right now, confirming each other.

As crude oil is trading at its highest level in six years, we want to be looking for opportunities in oil-dependent countries and energy-sensitive assets across the globe.

The iShares MSCI Saudi Arabia ETF $KSA is at fresh all-time highs, but we don’t love the risk/reward right now.

Luckily, it’s not the only country positioned to benefit from the bull market in energy. Let’s look at some others.

Where better to start than Canada:

We're looking at a massive base breakout in May followed by a tight consolidation above its record highs from 2007.

We're making the bet that, sooner or later, price resolves higher, in favor of the underlying trend.

We’re long above 36.50 with a target just above 50 over the next 3-6 months.