Energy turning out to be stronger than expected
Key Takeaways
- S&P still grinding sideways, but this consolidation should break out to the upside into Friday’s CPI report and/or early next week before showing much resistance.
- Energy technicals show a further push up before consolidation; however, weakness likely does not prove to be as strong as initially expected, and Crude should hold $100.
- Uranium stocks look like an attractive area to overweight on Biden’s plan.
US Equity markets continue to trade range-bound in the month of June, consolidating the rapid runup seen back in late May. Hourly patterns still look to have an above-average chance of moving higher into next week to resolve this choppiness, and several attempts at pulling back look to have failed, most recently, Tuesday morning. Overall, key areas of importance lie near SPX-4180-9 as resistance, while 4076 is now key support to monitor. Movement over 4189 would lift SPX to 4220 or possibly more meaningful targeted resistance at 4285-4325. At present, little lies between current levels and the upper boundary of this triangle, and I expect this should be tested and likely exceeded into this Friday’s all-important CPI report. Bottom line, trends remain bullish unless 4076 is broken, and I expect a push higher to test 4220, or 4285.
Energy’s turning out to be far more resilient than thought
Technically, the short-term tactical pullback in Energy has not materialized as planned, and now WTI Crude and OIH are on the verge of reaching yet another new weekly high.
While technically I remain bullish on this group on a medium-term basis, most of the cycles and evidence of counter-trend exhaustion have not given much if any chance to buy weakness.
Specifically, WTI Crude is nearing a very important area near early June highs at $120.99 (Front month Crude Futures). Getting above that area would suggest WTI has officially made a completed five-wave advance from the May 10 lows.
This has two important implications:
First, it suggests that pullbacks are closer than ever, as this would be a completed Elliott-wave pattern over the last month. Upside targets on WTI Crude project peaks near $122-$123.50.
Second, it suggests that weakness over the next month would not break early May lows at $98.20 and might just retrace 50-62% of this rally over the last month before pushing back to new all-time highs with minimal real technical damage.
Thus, increasingly it looks like the lack of technical damage and recent wave structure is carving out a much more bullish technical pattern. This suggests that inflation likely does not dissipate as quickly (at least based on Crude prices). Second, it makes Energy wrong to fade for any more than a likely 4-6 week timeframe, and any pullback in Crude likely should find a technical floor of support near $100.
Natural Gas also showed just a minor pullback thus far; however, prices are reaching a zone to sell into over the next 1-2 weeks on strength.
Similar to WTI Crude, we’ve seen little to no meaningful deterioration in “Natty” to suggest this is immediately peaking, despite the bearish “3 Little Indians” pattern, complete last week. Prices fell for just three days before holding trendline support and spiking back higher.
Technically, it’s important to see a true break in trend before getting bearish on Natural Gas (NG) Prices would need to break to at least a new two week low, which would mean pulling back under $8.11 for front month NG futures.
The strategy on how to play NG at this stage involves selling into price gains to $10-$10.50, while using dips to buy down near $8.25-$8.50. However, any break of $8.11 would likely take prices down to $7.50 without much trouble. This would also line up with intermediate-term cycles which should be turning bearish for NG. At present, price trends are still fairly resilient, but I’m expecting that investors should get a chance to buy into weakness into late June and/or July, which has several time-based targets for Energy commodities to trough. At present, Tuesday’s gains might still extend a bit further into early next week.
Uranium stocks should rally further if lawmakers support Biden’s $4.3 billion plan
Tuesday’s above-average gains came from many stocks involved in Uranium production, as the Administration is seeking a $4.3 billion plan to buy enriched Uranium directly from domestic producers to wean the US off Russian imports.
While jump-starting the domestic Uranium industry might take time, given the US has just one commercial enrichment facility—a New Mexico plant owned by Urenco Ltd, Tuesday’s technical gains in stocks like Cameco (CCJ-0.15% ), Energy Fuels, along with Sprotts Uranium Miners ETF (URNM), showed abnormally good performance during Tuesday’s trading.
Overall, this group looks particularly attractive given its pullback to an area of trendline support in many stocks and ETF’s over the last couple of months. Charts below of URNM show this weakness having stabilized technically exactly where it needed to in order to keep this uptrend intact. (I own SRUUF and UEC). URNM likely can rally to $88-$90 initially and movement over April highs at $94.85 would drive a larger rally to near $110-$115.
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