WTI Crude likely lifts to the high $80’s which should aid Energy’s rally into 2Q
- SPX rise could very well hit 5400 in the short run before consolidation
- WTI Crude rally could run up to high $80’s without much trouble
- Energy remains a technical overweight; E&P’s and Services are most attractive
I continue to see the US stock market as being attractive, technically speaking, and do not feel sufficient risk is there to warrant a selloff at this time. While price action has been a bit more subdued in recent weeks following momentum gauges having gotten overbought, there remain precious little other evidence with regards to frothy speculation to excessive valuation measures that would warrant a major selloff. Rallies up to SPX-5350-5400 are definitely possible into mid-April before a consolidation gets underway. Both Treasury yields and US Dollar should be starting to roll over.
A rather lackluster day of trading from a net point gain/loss perspective, but despite fractional losses of -0.31% for SPX, only Industrials and Consumer Discretionary fell more than -0.50%. Technology’s loss in Hardware and Software were offset by bullish gains in Semiconductor stocks, which helped to dampen the loss in this group.
Meanwhile, Energy proved to be the best performing of any of the major sectors on Monday, and this group continues to show excellent strength and should remain a Technical Overweight.
Looking at S&P Futures on this daily chart below, support lies near SPX-5200 while resistance very well could materialize near 5350-5400 on any gains back above last Thursday’s intra-day peak of 5261.
No evidence of any correction is yet underway despite three straight sessions where prices fell from earlier higher opening print. Overall, it’s likely that prices turn back higher and push up into late March given no evidence of technical deterioration.
S&P 500 Futures
Energy Outperformance likely to continue into late Spring/Summer before a peak
Energy has quietly moved into the top spot for sector performance when examining Equal-weighted ETF performance on a one-month, three-month and Year-to-Date basis (YTD). Energy is leading all other sectors with one-month performance of nearly 10% in Energy (+9.68%) which is more than 700 basis points more than SPX in the rolling one-month period.
Energy also leads all other 10 major S&P Equal-weighed ETF sectors with YTD gains of +11.10%.
Incredibly the performance has largely gone unnoticed by many investors who remain focused on Technology and anything AI-related.
Crude oil is nearing a time when the so-called “Golden Cross” might materialize (50-day moving average crosses above the 200-day moving average) which historically has had bullish implications.
When looking at Equal-weighted Energy ETF by Invesco (RSPG -0.46% ), gains have just eclipsed the highest level in nearly 10 years last month, surpassing the prior peaks seen from last Fall and the two prominent peaks from 2022.
Additional upside gains are likely for Energy which should rally into May before possible consolidation.
Furthermore, WTI Crude oil could rally to the high $80’s before much serious resistance. The S&P Equal-weighted Energy Invesco ETF (RSPG) closed at $81.98 on Monday 3/25 and targets for this lie at $87 and then $88.50 before this stalls.
S&P 500 Equal-weighted Energy ETF
Energy vs. SPX has just started to kick into gear after turning up sharply in the last month
As this ratio chart shows below with RSPG relative to the Equal-weighted S&P 500 (RSP 0.04% ), Energy has pushed up sharply in the last few weeks which has given this relative relationship some much needed relative strength.
Technically I believe that the 2nd Quarter of 2024 likely provides continued strength for Energy. However, the 1st half of this year might prove to be better than the 2nd half of 2024.
Thus, Energy longs might look for an exit during a time between May-July when Energy can often peak out following a strong period of bullish seasonality.
At present, Energy has just begun to kick into gear in recent weeks and further gains are likely into the late 2nd Quarter, 2024.
S&P 500 Equal-weighted Energy ETF / S&P 500 Equal-weightedETF
Exploration and Production ETF looks more attractive than XLE or OIH
Given Chevron’s underperformance in recent months, the XLE is not likely the best way to participate in Energy for those seeking the best alternative for how to participate in Energy’s rise.
Selectivity remains important, but given that Energy is leading all other sectors on multiple timeframes, many stocks have already been doing quite well, and there remain some technical standouts (which I’ll mention following the chart below.)
Near-term, XOP, the SPDR S&P Exploration and Production ETF should climb to test $155 without much trouble. Getting above that level would allow for some additional near-term gains and outperformance. However, it’s worth sharing that RSPG remains at least another 3-4 weeks away before this likely shows DeMark exhaustion across multiple timeframes.
SPDR S&P Exploration and Production ETF
My preferred technical picks within Energy which I still feel are timely are as follows:
VLO -0.80% , CNQ 0.81% , WMB, FTI 0.00% , PSX -3.71% , CNX 0.25% , MPC -0.56% , PXD -2.28% , SM, and MTDR 0.05% .
