So today Crude is finally taking a hit. About time.. it only took 13 weeks of chop and for everyone to be as long as just before the 2014 crash. Now what? I haven’t owned anything energy related in a while and am not looking to soon. I have a bunch of charts on why I am continuing to avoid this sector for now. Lets get started:
Off the bat, Energy as a group has been underperforming since mid December as the S&P500 has been on a tear. YTD: Energy -7% and S&P +6%. Is this where we want our money?
XLE’s downtrend is confirmed by it’s Advance-Decline and this isn’t pretty either.
Zooming out, Energy relative to the S&P was building a potential bottom and momentum divergence but that was all taken out in the past few weeks. It proved to be a sign of things to come in Crude, which we finally are seeing today. Do you want to own energy stocks on a relative basis here? I don’t.
Everyone loves to talk about small-caps outperforming when things are good, but I don’t hear as often about them when they are underperforming. Looking at the small-cap Energy ETF PSCE, things were promising but we failed to hold the 2010 lows and rolled over. XLE is down 2% today and PSCE is down 4.3%. Not good.
Russia has been a great tell for the energy space. I see/saw a head & shoulders bottom pattern that had no regard for completing the right shoulder. Unfortunately, today Russia is getting hit too. Not good either.
So now what? As for Energy stocks, I am in “wait and see” mode. The excessive bullishness towards Crude needs to unwind. If we were going to breakout, it should’ve happened already. Everyone is on one side of the boat and I think its about to tip the other way fast. Also notice how Crude hasn’t been overbought since 2011 and has been in a bearish range since 2012..not a trait of a bullish asset. The head and shoulders bottom is a distant memory now.
Thanks for reading.