Energize your portfolio

March 24, 20246 Comments

I’m bullish on energy. That’s right, oil & gas. If you watched my recent video on AI & data storage power needs, you know that the combination of power demands coming from these technology needs, EV’s, and population growth will increase the need for electrical power by magnitudes over just a few short years. This need is pretty much unmatchable by current and projected power availability.

The solution? In my video, I paint a clear picture that nuclear energy is the only scalable (key word) solution. Problem is, it takes a looooooong time to build nuclear plants. That, and mining enough uranium to power such plants.

Reality check

A quick reality check for our climate radical arrestee, minister Steven Guilbeault (only in Canada…!). Windmills and solar are not going to cut it! The solution is nuclear, but there is a time lag in its ability to meet the neartermed power grid demands.

OK. So if we need power pronto, and nuclear is going to take a while to meet those needs….what’s going to fill the gap?

It ain’t windmills. Sorry, Crazy-Steve…..Its fossil fuels! And this is not a Canada-only challenge. This is an international challenge. Higher worldwide power needs, coming soon to a theatre near you.

I am bullish oil and gas. Lets look at three pieces of technical evidence to that bullish outlook.

 

1. Energy Advance Decline line turns bullish

Sentimentrader.com matched the recent surge in breadth amongst the components of the energy XLE ETF. You can see on the chart below that, while XLE has NOT made a new high, the energy AD line has. A concept discussed in my Online Trading Course:

  1. If the AD line of an index diverges negatively, this implies a narrow market (lack of broad participation). Typically this is bearish for markets.
  2. If the AD line diverges positively against the index, its bullish. Note on the chart below the retracement is 100% by the AD line to its old high, vs the XLE only at 92% of its old high.

The market is telling us that it likes almost all of the components of the energy index enough to be rewarding most of them with advancing prices. Despite a few overweight positions holding the cap weighted index back, the market favors energy on a broad basis.

 

History proves that this condition is bullish for the energy sector. The data below goes back to 1954 highlighting the 28 times this extent of positive divergence occurred. Each column represents the return for 1 week, 2 weeks, 1 month, 2 months, 3 months, 6 months and 12 months. Basically, the odds of a successful trade in these conditions over these periods (% positive) ranges from a low of 61% to a high of 75%. Those are pretty good odds!

2. Seasonality turns bullish

We’re in the sweet spot for oil right now – until June. Note the strong outperformance over this period. Clearly, the time to sell is in June if you are strictly paying attention to seasonality. We have a bigger picture view based on the supply demand issues noted above.  We will reduce exposure if the charts roll. Meanwhile, there’s plenty of time left on this trade from a seasonal perspective.

3. Charts don’t lie

I’ve been posting this chart for well over a decade on this blog. Its support resistance zones are highly reliable. We’re coming into a resistance point of  above $85 on WTIC right now. This is the one bearish argument I could provide you on the oil trade. However….If $85-$90 cracks, next stop $110.

Natural Gas is NOT as bullish as the oil chart. Seasonality is positive (albeit with a subdued outperformance tendency) until spring.

Perhaps in its favor is a very strong support level on the Nat Gas chart that does seem to be holding up. An oversold trade potential?? Conservative traders should avoid the trade for now. Aggressive traders may be looking at a risk-weighted opportunity, with a  stop loss below about $1.50-ish.

Producers look to be breaking out. Interestingly, this is happening ahead of oil. Here’s the iShares energy ETF (XEG) chart. Investors look to be buying, not waiting for the commodity to make a move.

The sentimentrader OPTIX  (compilation of contrarian indicators) has moved down from overly-optimistic status. There’s not much indication of irrationality in the producers right now.

Conclusion

Bullish: Fundamental realities, seasonal tailwinds, improving breadth. Bearish: Technical resistance on WTIC oil itself.  Heads-up: Producers are moving ahead of the commodity – without irrational exuberance by retail investors (ETF investors).

Conservative investors might consider waiting for WTIC to stay well ahead of $85 for a better odds. We’ve been legging into the producers for a while no. We like the odds presented on most of the indicators noted above.

We’re ignoring the Liberal-lunatics & their carbon-fanaticism. Clean energy via nuclear and other solutions will come. Meanwhile, oil & gas are still the main solution to world energy needs for the foreseeable future. As the Wizard of Oz said, “Pay no attention to that man behind the curtain”. Especially if the man is a wild eyed lunatic in an orange jumpsuit being escorted in handcuffs by police.

We’re buying oil!

6 Comments

  • Notice the Federal Liberals discount for xeg to xle since 2014. Even worse on a longer chart. What happened a just after 2014.

    Reply
    • Yes, I have posted a blog and a video highlighting the massive negative divergence in relative strength for CDN oil producers since about 3 months after Crazy-Steve was appointed minister of environment. I am not alone in calling him a stark raving mad lunatic. Big money managers across the continent cannot believe his (and subsequently Trudeau’s) complete lack of reality in their “plan” to go green. Canoe Financial, BearTraps, Kevin O’Leary, BNS, and so many more.
      Yes, we need to go green. But penalizing taxpayers and industry BEFORE infrastructure is in place to replace fossil fuels is so detrimental to our country. That’s why we are in DEAD LAST place for GDP productivity! Such a shame, as we used to be one of the most per-capita productive countries in the world.
      It took a village idiot to destroy our country.

      Reply
  • Nat Gas is used in power generation rather than oil so while I buy the argument I believe the gassy stocks have a lot of potential.

    Reply
    • Totally agree–I am doing some more work on nat gas, plan on blogging in a day or two –some new research on nat gas that is making me much more bullish on the trade than when I wrote this blog. Stay tuned.

      Reply
  • Thanks for your sanity on your blogs related to Canadas current political disaster currently residing in Ottawa. I often wonder if anyone else realizes the incompetence and corruption that is occurring. It’s heartening to know I’m not alone. I really enjoy the blog!

    Reply
    • Based on the anti-Trudeau bumper stickers and whatnot I see everywhere, I’d say we are certainly not alone.

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Never miss another blog post!

Get the SmartBounce blog posts delivered directly to your inbox.

Topics

Topics

Recent Posts

Keith's On Demand Technical Analysis course is now available online

Scroll to Top