Crude Awakening For Oil Bears?

Last week we mentioned that the energy sector, represented by the XLE, was either the best or worst performing major S&P sector ETF 4 of the last 5 years (the lone exception was the year ending 2017 which was the second worst). If recent YTD form holds, although very very premature, it has the potential to occur once again. As one can see on the chart below in 2019 it has behaved the best of the 11 groups. The XLE still remains in bear market mode lower by 22% off most recent 52 week highs, but it has given the overall market a boost along with it. The easy work has been done as energy was the most oversold, and many will rightfully question whether the nascent run has legs. Remain mildly negative as we know trends in motion tend to stay that way, more likely than they are to reverse.

Services/Exploration Ratio Chart:

The services plays are beginning to catch a little bid as the price of crude has witnessed a quick 10 handle jump. The consensus seems to be that this oil move should hold, and if not a move back below 50 would be very bearish. WTI is battling a bear flag breakdown retest and a downward sloping 50 day SMA. Some of the stocks in the service space have been decimated, most notably HAL and SLB, both still nearly cut in half from their most recent 52 week highs. Some relatively recent IPO’s may assume fresh leadership, with names like DNOW and PUMP acting a bit better than their more mature brethren as of late.

Examples:

Below is the chart of NOV and how it was presented in our 1/8 Energy Report. We expressed our belief that a good risk/reward scenario was present at the 25 level that held once again as it did in 2010 and 2016. Both instances were also accompanied by bullish candlesticks, and while this month is just half way through, it has the look currently of yet another positive one as a piercing line is taking shape. Notice the strong moves in price as the 201o maneuver made its way to 70 eventually, and the 2016 bounce off 25 carried it close to the very round 50 figure. Of course these took years to develop, but keep in mind the big money is made sitting on your hands.

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