Is It Time to Buy Energy Stocks?

February 16, 2024No Comments

Is It Time to Buy Energy Stocks?

First, let’s Talk About Oil

Time to Buy Energy Stocks? Today we’re going to take a look at  Oil. I wrote a blog recently that I strongly encourage you to take a look at. It’s called ‘Read This Before You [00:00:30] Invest In Energy Producers’, and I embedded a link to a video interview I did with Lorne Gunter of the National Post and Calgary Sun. He gave a brilliant interview and explained from the perspective of a man who’s involved at a much deeper level than most of us will ever be in that industry. From a commentator’s point [00:01:00] of view, he taught us a lot about Energy Stocks and the Producer situation in Canada. It was so eye-opening, I recommend you watch it.

But today, I want to bring some news to you: I believe that from a technical perspective, Oil looks to be rounding the corner as far as the setup goes. We’re also going to talk about the pluses and minuses that could happen to the energy trade [00:01:30] over the coming months.

I like to use PowerPoints for these videos, so I will bring up a PowerPoint on Energy. I put this together on the 13th of February and you’re probably reading this about a week later, so just be aware. We’re going to start off working from the consumer’s point of view, like the Oil products [00:02:00], and then work down to what the Oil trade itself looks like.

 

When asking is it Time to Buy Energy Stocks – let’s look at Gasoline Futures

If we look at Gasoline, that’s what we end up using in a big way, driving our cars and gas and for many applications within the industry as well. Gasoline futures have come from basically hovering around $2 to around $2.70. That’s a big move, and we can see that at the bottom of the chart here that they were [00:02:30] very oversold and, when they get oversold, you’ll often see a rally. We got that rally, but we’re also seeing very strong movement on what’s called the ‘force index’. This is a measurement of both momentum and money flow put together. It was an indicator created by a man named Alex Elder, and he [00:03:00] wrote a brilliant book called ‘Trading for a Living’ that I recommend everybody read.

So, that’s heading up, as well as the rate of change. Now, I prefer using a super long rate of change. In this case, we have a weekly chart and we’re using 240 weeks. So, this is a long indicator, but I’m looking for those big moves. Money flow (a fairly long indicator), Force (a fairly short-term indicator), and Rate of Change (which is very long-term), [00:03:30] are all turning up. There is some resistance at $2.80 as you can see on the chart, but there are probable reasons for this to continue. In other words, we have a very good chance of seeing $2.80 break because [00:04:00] of the technical setup and those indicators you’re looking at on the bottom of the chart, maybe even seeing higher in the $4 area eventually. But it needs to break through $2.80 first.

Now, what could go wrong? Larry McDonald at the Bear Traps Report, (a research service I quote from), is saying that Gasoline is a problem for CPI and inflation. The election team is not going to want inflation going into [00:04:30] the November election. So, they may just try to reverse that problem. And by the way, assuming it’s Biden, but I note here that Kamala Harris is “ready to serve”, as she recently said in a quote, as Democrats sound the alarm on Biden’s age. It’s not Biden’s age, it’s his cognitive abilities. We’ve all heard stories of him starting to talk and then forgetting what he was about to say, or going the wrong way down and tripping and falling. [00:05:00] I think he’s a classic case of a guy who’s probably a little too old to be in politics. So, whatever the case, whether it’s Biden or somebody else running the show, these guys have a problem if inflation is still raging, coming into the election. If you are asking your self is it time to buy energy stocks, this needs to be considered.

 

Politics and the Energy Stocks

You might remember during the mid-terms 18 months or so ago – [00:05:30] I talked about how the direction of investment movements can be driven by political decisions. I’ve studied this – you can have a perfect technical setup like what I’ve just shown with Gasoline [00:06:00] that can fail if we get a government decision that changes things. So, before the mid-terms, Biden decided to dramatically release and empty the strategic reserves in the USA. This was done solely to help them with the mid-terms. He wanted to have low inflation, and Energy is a big, big, big component of inflation on so many levels. [00:06:30] He did this strictly for political reasons – it was not to do well by the consumer or anything like that.

The problem is, he drew down these reserves to a point where here we are, in February 2024 and the strategic Oil Reserves in the USA are at 37-year [00:07:00] lows. Let me repeat that. 37-year lows.  And we’re coming into a Middle-Eastern war, a Russia versus Ukraine war, and the supposed ‘Policeman of the Year’, the ‘Superpower’ (the USA), has been left in a very vulnerable position. They have 453 million barrels of Oil, which sounds like a lot, but it’s [00:07:30] not that much. So, we have a real problem. Biden has a problem because he cannot release more Oil. Well, maybe he will because I sometimes think these people just don’t give a damn, and they go ahead and do what they want to get elected whether good for the common man or not. They don’t care – it’s all about just getting the power. So, just keep that in mind. That could be the monkey wrench that changes things because they’re going to be between a rock and a hard [00:08:00] place if the trend keeps moving up for Gasoline and other by-products like Diesel.

diesel futures

Is it Time to buy energy stocks?  – Diesel and other By-products

Guess what? Diesel is used in the industry a lot. Here is a classic example: If you look back to 2019, the market fell heavily, made a rally, came to a higher low, and went on to move considerably up on Diesel prices. Now, look what’s happened recently. The market fell, made a rally, and the recent low is considerably higher than the [00:08:30] last low, okay? It’s the same setup as 2019. This is why we’re seeing the future markets bidding up. So, keep this in mind. So long as nothing crazy politically happens, you’ve probably got a setup for higher prices in the by-products of Oil and energy stocks.

WTIC crude oil early sign of move, Time to Buy Energy Stocks

So, let’s look back at Oil. WTI is the clean stuff. I’ve talked about this before – $80 to $90 would be a technical resistance point. It’s at $76-$77 today as I speak, [00:09:00] so we could get $80 easily, maybe $90 because we’re seeing all these indicators hook up. They weren’t hooking up last time I think I talked to you about this. There’s the force index, there’s money flow, and here is the rate of change. You can see all this stuff moving in favour of at least the old resistance points being touched. So, we have seen this before.  Energy stocks sectors like the actual Producers, [00:09:30] there is some upside from a seasonal perspective, often between March and May. Oil typically moves a little before that, so Oil will lead the Producers.

energy sector seasonality, Time to Buy Energy Stocks

Producers in the US vs Canada – Energy Stocks

So, that’s it for the US side. On the Canadian side, you’ve got, Rafi Tahmazian, he noted back in an interview about a year ago, I quoted him, he said, Trudeau’s policies on Oil and the green movement are [00:10:00] “moronically stupid”. Well, those are harsh words, but let’s take a look here. One of the things I talked about a while ago, was that the Canadian Producers are starting to underperform the US Producers, and yet the US Producers were underperforming Canadian Producers forever. Well, in October of 2021, Guilbeault was appointed [00:10:30] as the Energy Minister in Canada. And, literally within six months, the relative performance of the US Producers turned around. And, it’s because Canada has some of the most restrictive policies on our Oil Producers. And, it’s going to hurt, it is hurting, and quite frankly they’re asinine. Again, I encourage you to watch the interview with Lorne Gunter.

oil Index, Time to Buy Energy Stocks

[00:11:00] Here we have a guy who came from a Greenpeace-fanatic side of the world. He was one of Trudeau’s frat boys. I mean, he climbed on Ralph Klein’s roof while Klein’s wife was alone in her house. And, this maniac was climbing on their roof trying to install fake solar panels. He also climbed the CN tower. This guy is not your traditional ‘Minister of whatever’ [00:11:30] – he’s a crazy frat boy. His policies are just completely out to lunch with reality. And I mean, I’m not the only one to comment on this. People worldwide are talking about Canada’s Oil policy and you can see it in the charts. It’s not just my opinion. Look what’s happening when considering if it is time to buy energy stocks. So, this is important. Again, I’m talking politics – but, if you buy into my technical argument that Oil is going to go up, which would you rather own – the outproducing or the underproducing Oil Producers? Energy stocks?  [00:12:00]

 

Final Conclusion on the Energy Stocks

I’ve been delivering a very passionate message here, but this is investing – and you have to pay attention to this stuff. So, let’s get to the final conclusion. We have a very good technical setup for Gasoline, Oil, and the Producers. I’ve provided you with really good technical reasons to get in on the trade. You saw all those hookups on the momentum [00:12:30] indicators etc. Seasonality is very bullish (or is coming into the bullish period until May anytime now), so you should start to see the Producers and Oil start to pick up, and they do seem to be doing that. The fly in the ointment is political. Inflation is back for politicians like Biden trying to get re-elected. So, he might do something stupid, and drain the strategic Oil reserves even lower, which are already at 37-year lows. But, why not? It’s more important to get elected. That’s [00:13:00] the way these guys sometimes think.

So, my recent blog and video interview on the Oil trade is very worth watching and reading. I would suggest that we own Oil Producers in Canada, but I’m starting to look more at the US side because I think they’ve got less political risk as far as the Producers go. And, I ask you to pay attention to the support and resistance points on the charts. Energy stocks in Canada may have more political risks associated with them.

I hope this has helped, and we will see you again [00:13:30] in another video next week. Thanks for watching.

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