Energy Group Yearly Returns:
Energy has been quite a volatile performer in recent years as the chart of the last 10 years attests. More recently it has been even more true, as 3 of the last 4 years have been either the best or worst actor (with the only exception being 2017 where it missed being the worst actor to the telecom space by just 30 basis points) of all the major S&P sectors. This year with less than one month left, the XLE is keeping true to form as it is the second worst behaved group, as only the materials have fallen more (on a 3 and 6 month time period it IS the worst behaved of the 11 major S&P arenas). Therefore I would conclude that it is likely there are more losses in store into year end for energy. Not getting much attention is the action of the solar group, which should be weak given the energy drawdown as it loses its competitive edge. The TAN ETF broke above its 200 day SMA one month ago, a line it was beneath since June. It filled in a gap on 11/14 from the 11/2 session and I think a retest of the very round 20 number, if tested, would be a good risk/reward scenario.
WTI Price Action Ready To Drill Higher?
Crude has certainly seen a precipitous drop. That there is no question about. Many can debate the reasons why, the most logical I hear is the supply side of the equation with the US now the worlds largest producer. But any justifications for it come in a very distant second to PRICE action. That is all that really matters. That is how investors are paid so price should be and is omnipotent. Below is the daily chart of crude and it shows the failed breakout above a cup base trigger just above 75 in early October. It actually did breakout but the move lasted just 4 sessions before falling back underneath the trigger. On the positive side there have been some bullish, bottoming candlesticks with strong support, for the moment at the very round 50 number. There was a doji candle on 11/27 and both days of 11/29-30 both traded intraday below 50, but both CLOSED above the figure. Its weekly chart last week shows a bullish harami, which doubled as a spinning top (another candle that tends to predict changes in trend) that ended a deep 7 week losing streak. Bulls have their line in the “frac” sand as a reference point and stop.
Even best of breed names lose their status, and although it is important to remember that new bull markets are driven by fresh leadership, one should always be cognizant of the strong players as they can also contribute powerfully on the way up. I remember in the not too distant past that the two generals in the space were PXD and EOG. Both have come under hard times as PXD is now 32% off most recent 52 week highs and EOG is 22% off its own. PXD was unable to make much headway above the very round 200 number with two CLOSES above the weeks ending 5/11-18 before falling back to earth (that was also a long cup base breakout above a 199.93 pivot in a pattern 15 months long). Below is the chart of EOG and how it was presented in our Energy Report on 11/28. The round number theory comes into play here as the very round par figure has not seen a WEEKLY CLOSE below in 2018, even though EIGHT weeks were below 100 intraweek. There was a bullish engulfing candle on 11/15 and play from the long side as long as that catalyst still exists.