Thoughts On The Energy Sector

A reader asked me today what I thought of the energy sector and if I would look at it using Stage Analysis.  I have been noticing some energy stocks appearing on my stock scans, and that hasn’t happened in quite a long time so that’s a positive.  But here’s what I’m not seeing that hasn’t made me want to load up on energy stocks yet:

  1. Large number of energy stocks across the sector breaking out to new highs on big increases in volume
  2. Energy stocks outperforming the S&P 500 and other sectors
  3. Crude oil in an uptrend
  4. Commodities as a group in an uptrend (I tend to use the GCC ETF to view that)

Here’s a longer term chart of XLE.  A couple of things to note on this chart.  I’d rather see a nice long base here to launch into a new bull market, but all we have so far is a bounce higher from the 2016 bottom.  I could see energy stocks basing for a while longer here and digesting the previous bear market.  I want to see XLE outperforming the $SPX on the middle section of the chart too, and that’s clearly not the case.  If you look at semiconductors or biotech (SMH or XBI) you’ll see the exact opposite of what you see here and that’s why I like those sectors right now.

I actually did recently trade one energy stock WTI because I liked the chart but I didn’t trade it as a sustainable uptrend.  Maybe I’ll be wrong and energy stocks have bottomed here but I don’t see that yet in the charts.  On this chart of WTI though you can see how we have a nice Stage 1 base that it exploded higher off from on massive volume.  But notice how it did the same thing in late 2016 only to turn out to be a fake rally that failed.  I wouldn’t be surprised if the same thing happens here unless we see more strength across the sector.

I see the same thing in energy in other commodity sectors like gold stocks.  A few stocks breaking out higher but that tends to be the exception more than the rule.  That was why I didn’t think the August to September rally in gold was going to lead to a new rally as well, I saw a lot of gold stocks acting terribly when they should have been gearing up for a big move.

Checkout my new Stage Analysis Screening Tool at: http://screener.nextbigtrade.com

Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

On The Lookout For A Bear Market

There’s a lot of doomsday prognostications in stuff I’m reading about the markets tonight but the bottom line is you have to ignore what pretty much everyone says about the markets, and just follow price.  Especially when a bear market starts because downtrends fuel all kinds of crazy speculation on where markets might go, and whether you should “buy the dip” or panic and run for the hills.  Nobody knows the future so the best course of action is to have a plan and execute it as the market action unfolds.

The major market averages are all in Stage 3 now with the Dow Jones rolling into a Stage 4 according to my Stage Analysis screening tool.

http://screener.nextbigtrade.com/#/sectors/U.S.%20Markets

Less than 30% of stocks in the NYSE are in Stage 2 now.  That’s how weak the markets have become after last weeks’ carnage.  Notice that the Biotech sector has barely 50% of stocks now in a Stage 2, and Biotech was one of the leading sectors in the market.

http://screener.nextbigtrade.com/#/markets

The U.S. dollar is in Stage 3 now which is potentially bullish for gold which has rallied hard off of its recent bottom.  Gold is getting closer to testing it’s 30 week moving average now, even though commodities as a whole are still very weak and are in Stage 4 bear markets.

http://screener.nextbigtrade.com/#/sectors/Currencies

New Interview – The Real Money Show

I had a great opportunity to interview with The Real Money Show yesterday and you can find the interview on their website at therealmoneyshow.com or on iTunes.  I discussed the state of the gold and silver markets with Jeremy Wiseman, along with other topics such as the U.S. stock market, U.S. dollar, dumb money corporate buybacks in the U.S., and weakening U.S. economic data and its implications.

Weak Markets

So far this year the markets can be characterized as pretty weak across the board with few breakouts that actually do anything.  Using my Stage Analysis Screening Tool at screener.nextbigtrade.com I like to get a feel for the health of the markets by first looking at my Health page to see what sectors are strengthening and weakening.  For the last few months the number of weakening sectors continues to outweigh the strengthening sectors.

screener1

Next I like to go over to the Markets page and sort the different groupings by Stage 2.  This tells me what groupings are the strongest and what are the weakest.  In particular I like to pay attention to the % of stocks in Stage 2 of the S&P 500, NASDAQ, and NYSE groupings.  Needless to say breadth is pretty weak right now with the NASDAQ barely over 50% in Stage 2, and the S&P 500 and NYSE actually underneath 50% as of today.

screener2

Finally I like to drill in to some specific groupings, most notably U.S. sectors to see which are the strongest and weakest.  Energy has been weak for a while and I continue to expect it to remain weak while the Stage 1 base in oil plays out and wears everybody out.  We’re starting to see Industrials, Commercial Real Estate, and Consumer Staples get toppy in a Stage 3.

screener3Overall this market is very weak with the only opportunities occurring in select things like Health Care, Semis, and Financials.  I wouldn’t be surprised to see another move higher since this market has consolidated for so long but we will see if this market can muster any type of real broad based participation.  Or it could be deteriorating into a something that the bulls aren’t expecting which is a market that actually corrects.

Adding Uranium Stocks To The Stage Analysis Screener Watchlist

I’ve just added some uranium miners to the Stage Analysis Screener Watchlist, which is a curated list of stocks that I’m paying attention to for potential trading opportunities.  The idea is to keep tabs on stocks breaking out into new Stage 2 advances to get in as early as possible in a new bull move and maximize potential gains.  You can checkout the screener at screener.nextbigtrade.com.

Over time I plan on adding more functionality to the tool, in the meantime feel free to contact me if you are interested in seeing a stock list, specific stocks, or other types of analysis methods added to the tool.

sascreener