Group Overview:

The energy group overall has been hot and cold to put it mildly. Below on this yearly major S&P sector chart one can see it is either near the top or bottom of the leaderboard. Four of the last five years has either been the best or worst, with the exception being 2017 with a slim 30 basis point advantage over the moribund telecom space. Can one incorporate a “Dogs of the Dow” strategy with energy in 2019? I doubt it as there have been just 2 top 4 finishes in the last 12 years. The XLE happens to be bouncing, as a rising tide lifts nearly all sectors, but it is approaching a retest of a bear flag breakdown near the 64 level. It never quite achieved its measured move to the round 50 number, but things never really work to precision. The XOP is a better reflection on the sector as it is much better diversified and that was rejected at the round 30 number today. Both ETFs will have to conquer downward sloping 50 day SMAs if they are to show a meaningful attempt at a trend change. Trade accordingly. 

Crude Bounce Closure?

The mean reversion between natural gas and crude oil prices rages on. WTI came within less than 1% of the round 50 number, which remember is a retest of the very round 50 number, which aligned with a bear flag breakdown at the very same figure. Natural Gas has retreated in spectacular fashion as it now trades below a 3 handle, where it was nearly a FIVE handle in mid November. That 50 level is important as it represents a throwback into a bear flag breakdown on 12/18. Monday it recorded an inverted hammer candle. Dispirited oil prices could be looked at verifying whichever bias slant you maintain. A bear would say the heavy price of crude represents a poor economy. But the value of crude can be beneficial in different ways. Obviously it helps when consumers fill up at the pump, but it can also be observed as a national security issue. The more we pump, the lower the price, and the less petrodollars are received by corrupt terrorist organizations. However as I always say just follow PRICE action as this is all we are payed on.

Examples:

The round number theory is one that I incorporate into my research as long time followers know. There are some that have more relevance than others, like the par figure. Or trading through the 90 figure for the first time, as the vast majority of stocks that do will travel to 100 and beyond. Below is an example of the round 10 number that also can be influential, and here it pertains to the energy laggard GPOR and how it appeared in our 12/13 Energy Report (have not written an energy report for 3 weeks since I did not find many investable opportunities on the long or short side). On the chart below one can see how 10 which as warm support in September and October became resistance in November and December. The name is still 45% off most recent 52 week highs despite a 9% combined the last couple weeks. Most likely this dead cat bounce will take its course and the downtrend should resume at its downward sloping 50 day SMA near 8.50.

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