Last week, I blogged (and ranted a bit) about the new fad of ESG investing. There is a growing trend for ETF producers to jump on this somewhat hypocritical, yet highly marketable, bandwagon. We’ve had two of the biggest ETF providers contact us recently and try to flog these funds. Rest assured, we didn’t bite – our stance is clearly outlined on that last blog. Clearly, there is a mandate on their sales staff to pump this stuff. Don’t be surprised if your Advisor suddenly recommends such a product to you.
Speaking of pumping…Oil happens to be one of the whipping boys on the list of evils, according to the ethical overlords at the High Church of ESG Investing. Mind you, these moral authoritarians have blessed a few energy producers – see my blog to find out more. A reader asked me to provide some analysis on the outlook for oil, moral corruption and evils aside. So today, I’ll look at both the commodity, and the energy producers, to see if there are investment opportunities here.
The chart above shows us a few things. I’ll bullet-point them:
- WTI is trapped between about $50 – $65. Therein lies the potential trade.
- Stochastics suggest an oversold short termed momentum picture. That provides evidence of a potential trade setup.
- Meanwhile, cumulative moneyflow (first pane below price chart) has improved significantly over the past 4 years. Thats a good mid-long termed signal.
- Moreover, moneyflow momentum (top pane) has turned bullish. That’s a short termed momentum score for money flowing in.
- Bottom pane is MACD. Its flat. Nothing to see here, folks. Move along.
- Seasonality is now in full swing for oil. Buy in February, sell in May.
Now let’s take a look at the producers. I’ll use the iShares capped ETF (XEG-T) for illustration.
This’d be yer’ basic bullet points on the above chart:
- Harder to define a trading range on this chart, but there does seem to be significant support at current levels (just under $8/sh.)
- Cumulative moneyflow is as bearish as all get-out. However, its an ETF, so the moneyflow trend is perhaps less significant than it is for an actual index.
- Moneyflow momentum (top pane) is kinda-sorta looking like its improving. That’s a definite maybe.
- MACD, which is a longer termed momentum indicator, is diverging bullishly against XEG. This is significantly bullish.
- Short termed momentum indicator stochastics is oversold and looking to turn up. That’s encouraging.
WTI looks to me like a decent bullish trading opportunity. We have legged in a bit via an ETF based on the commodity. Meanwhile, the producers look OK, but are not going to be so easily traded as the commodity itself. We have legged in via two stocks in the sector. Seasonality is good from herein, and the sector is oversold. I’m expecting it might be good for a rebound of some sort in the coming months.