Sector Overview:

One would not be out of line to question the character of the recent leadership, as energy and healthcare have come to the forefront. Bull markets want to be led by the likes of technology, discretionary or financials, but leaders need a chance for a prudent pause. Rotation is a healthy event, and other sectors will often fill in as leading groups rest and regather stamina. Energy has played that role and there is no reason why it can not continue. Crude prices are rising, in tandem with the greenback, an odd development but one to be respected. It was not long ago all the chatter was AAPL being the first one trillion dollar company, and heard in the media was that oil prices needed to remain elevated until the Aramco IPO, which of course has been shelved (was supposed to be a TWO trillion dollar company if the financials were to be trusted). The XLE is now higher 14 of the last 17 sessions and nearing a double bottom trigger of 78.10. A decisive move through there makes the right side of a long WEEKLY cup base look solid, that has room to the very round par figure where the XLE was stopped back in June-July ’14.

Equipment/Drilling Plays Percolating?

The drilling space within energy has lagged the exploration plays, but that gap is narrowing. The OIH is still vastly underperforming as the XLE as it trades 14% off its most recent 52 week highs and the XLE sits just 2% off its. I am not a mean reversion guy, but the OIH can certainly accelerate its recent strength, and that does not mean the XLE has to back up. It comes back to the classic, “know what you own” and the OIH’s two largest holdings comprise 35% of the fund. A bit too concentrated for my liking, however if HAL and SLB which are off by 28 and 22% from their respective 52 week highs, can get going it can catch fire. This ETF is still in the penalty box, until it proves it does not belong. The first step is to break above its 200 day SMA, and until that occurs consider this nascent strength a dead cat. A sleeper in the space could be the former best of breed PTEN which recorded a double bottom with intraweek lows of 14.83 and 14.60 (arithmetic) the weeks ending 8/25/17 and 7/27/18.


I am a big believer in watching new issues intently, as they are often overlooked and therefore underfollowed. Of course I would not recommend purchasing right out of the gate as their would really be no technical catalyst. One should wait for a base to form just like any other chart, and below is the chart of SOI and how the name was presented in our energy Game Plan last week. It is an equipment play that is still in bear market mode 22% off most recent highs made back in the first week of January this year. Notice the week ending 1/12 recorded a bearish reversal recording a dark cloud cover pattern that ignited the softness from the beginning of 2018 until the summer. The stock has risen by a combined 22% the last 3 weeks and this week is off by 1%, and can be forgiven as it consolidates that recent move. The round number theory comes into play here as the 20 figure halted its progress the week ending 5/11. Add to above a 20.28 double bottom pivot in a base one year long. The longer the base the greater the space higher, IF the breakout occurs. 

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