Are Oil Stocks Ready to Move Higher?
Stockscores Foundation for the week ending November 25, 2019
In this week's issue:
In This Week’s Issue:
- Stockscores Market Minutes Video – The Four Virtues of Stock Trading
- Stockscores Trader Training – Are Oil Stocks Ready to Turn Higher?
- Stockscores Feature Strategy – Leveraged Energy ETFs
Stockscores Market Minutes – The Four Virtues of Stock Trading
Like the Stoics, stock traders should have their four virtues for trading as well. This week, I provide that, my regular weekly market analysis, a Stockscores Market Scan in search of opportunity and the day trade of the week on ASLN.
Click here to watch this week’s Market Minutes
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Commentary of the Week – Are Oil Stocks Ready to Turn Higher?
Oil and Gas stocks have had a brutal few years. While the overall market has trended higher, this sector has done the exact opposite. However, out of the weakest sectors come the best opportunities, you just must time it right. This week, I want to tell you what to look for.
The Energy Sector ETF in Canada trades with the symbol T.XEG. The US listed equivalent is XLE. There are leveraged ETFs that will move faster than the market, up or down, that are worth considering for more aggressive traders. In Canada, consider T.HEU, in the US the most actively traded is ERX.
I have looked at these charts this week because I see Oil stabilizing and starting to show some short-term upward momentum. Energy stocks have not yet followed along but that is not uncommon as the commodity tends to lead the stocks.
I do not think it is time to buy these stocks yet, but I do think this group should be watched closely because a positive signal could arrive any day.
Here is what I like about the sector ETF charts:
- Compressed price volatility. This shows that investors are trading the group fairly rationally and it will make a break one way or the other likely motivated by a strong urge to buy or sell the group.
- A rising bottom has formed on these charts. That means that investors are starting to get optimistic since the last time they pushed prices down, they could not push them as low as they did the previous time.
- Current prices are right at the trend line. That means all we need for a buy signal is a strong move up through the 3-year downward trend line on the weekly chart.
So, if you are looking for timing the entry into this sector, watch for the downward trend line break on the unleveraged sector ETFs. If that happens you can consider those ETFs for a longer term trade or the leveraged versions if you are comfortable with the added risk that comes from the leverage.
Individual stocks will be worth considering as well, provided they too have a good chart pattern, like a break of the downward trend line from a rising bottom. Individual stocks can move a lot faster than the ETFs since they may possess Alpha characteristics as well.
Keep an eye on the group, there is a historical case for the dogs becoming darlings eventually.
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Below are the charts of the US and Canadian Leveraged ETFs for the Energy sector along with my comments of what to watch for as a buy signal:
Watch ERX for a strong (tall) weekly candle that breaks the downward trend line, up through the $17 - $18 level. Higher than average volume in support of the price move would be positive.
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Watch T.HEU for essentially the same pattern but with a move up through $5.
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