From the desk of Tom Bruni @BruniCharting
This week we added Canadian Stock Market and Sector Indexes and the entire TSX 60 to our chartbook coverage. To kick that off, I want to take a look at the Canadian Energy market and share what we’re seeing.
Let’s start from the top-down and look at Crude Oil from a structural perspective. Crude Oil recently approached the 61.8% retracement of its 2014-2016 decline and has re-established a range between 64 and 76.50.
Click on chart to enlarge view.
On the daily timeframe we see prices holding above former support at 62.50, with an upside objective at 85. Momentum hasn’t gotten oversold during the recent pullbacks, which is certainly a positive.
Here’s Crude Oil prices in Canadian Dollars. If prices are above 76.80, the bias remains to the upside with a target of 102.
Within the Energy space, Crude Oil continues to build out a long-term bottom relative to Natural Gas. If this ratio can get above 28, that would signal the start of a new long-term uptrend.
Moving into equities, the TSX Capped Energy Index continues to trade within a multi-year range. To confirm a new uptrend we’d want to see prices break above 215 with momentum getting into overbought conditions. Until then, we remain range-bound.
The TSX Capped Energy Index remains in a downtrend relative to Crude Oil. With the ratio consolidating below a downward sloping 200-day moving average and momentum staying in a bearish range, there’s little evidence of a bottom in this relationship.
Energy equities continue to lag the broader market as well, essentially trading in a wide, multi-year range.
While there are many stocks in the sector that are rangebound, I want to highlight some individual stocks that are interesting at current levels.
First up is Canadian Natural Resources, which has put in several failed breakout attempts 46.60. We want to see a decisive move out of this 2.5-year range with momentum getting into overbought conditions and a move above 46.60 would signal potential upside to 53.15.
Crescent Point Energy has been stuck in the 8.00-11.50 range for the last year. A resolution to the downside would signal the continuation of its long-term downtrend and target 4.50.
EnCana Corp. put in a failed breakout above 18.15 earlier this month. Should we get another attempt, we would be buying that breakout with an upside target of 22.90.
Enerplus Corp. recently hit our upside objective near 17.75 and has been consolidating since. If prices can get back above that level we want to be long with a target of 27.
Gran Tierra Energy also put in a failed breakout above 4.65 in July, but is setting up for another attempt. If prices can close above that level we want to be long with an upside objective of 6.30.
Imperial Oil Ltd. is a good example of a stock that needs more time to consolidate before creating a sustainable, long-term reversal to the upside. Prices failed a breakout above 42.80 last month, so a ‘wait and see” approach is likely best in the short-term.
Meg Energy Corp. also failed a breakout attempt last month and is now retesting former support. If prices can get above 10.15 we want to be buying that breakout, with an upside objective of 17.75.
Pason Systems has formed a 3.5-year base and is now back at the top of its range. If prices can break above 22.80 we want to be long with an upside objective of 31.
Suncor Energy is one of the few successful breakouts in this space. As long as prices are above 47.20 we want to be buying weakness in this stock, with an upside target of 59.50.
The Bottom Line: The Energy sector continues to be a mixed bag, but one that we’d rather be approaching on the long side than the short side as it attempts to carve out a bottom on an absolute and relative basis. Successful breakout attempts in the stocks noted above would signal improving breadth for the sector and likely lead to a breakout attempt in the TSX Capped Energy Index itself.
Energy in general continues to be a bright spot for a struggling Commodities space. Despite recent weakness, the bias in Crude Oil remains to the upside on an absolute basis and relative to the Energy Equities.
Thanks for reading and let us know what you think!