Will Canadian energy break out?

November 25, 201916 Comments

I was on Bloomberg/BNN’s Market call last Friday at noon. One discussion that came up was the outlook for Canadian oil. After four years of ignoring the importance of the Canadian oil scene, imposing carbon taxes, and no support for pipelines, the PM of Canada has apparently pulled his head out of his water box. After losing virtually every seat in western Canada – and the popular vote nationwide, witnessing Encana’s recent departure to the US, and renewed “Wexit” separation talks, Trudeau has finally decided to stop campaigning against the industry. With a fresh new view of the energy industry, he is, apparently, finally able to see the situation for what it really is. That is, western Canada is a major economic contributor to the Canadian economy.

Better too late than not all all…. I guess…..

During Friday’s show, I was asked if these discussions surrounding the Canadian oil industry will net out in rising energy stock prices. My answer, of course, came from the Technical Analysis view.

Oil stocks

The Canadian oil sector is not yet showing any sign of positive basing within its current downtrend. As at this point, the iShares TSX capped Energy index ETF (XEG) is still making lower lows and lower peaks on the chart. It remains below the 200 day SMA, and isn’t showing much in the way of momentum when we look at traditional indicators like RSI and stochastics. MACD is showing some upside – suggesting at least some potential for a longer termed move. However, comparative relative strength (middle indicator pane below the price chart) remains bearish. As does moneyflow (top and bottom indicators). No major signs of life yet.

Canadian oil stocks will base and eventually break out. But I cannot see any signs of technical basing or strength at this time. Moreover, energy does not enter into its prime seasonal period until February. Traditionally, energy has its best months from February until the spring. Further, from what I have seen in the meetings with Saskatewan with the PM (which went over like a lead balloon), and from what I hear of Alberta’s strained relations with the current Federal government – it would be a long shot to expect any meaningful revelations or concessions in turning the Canadian industry around.

WTI Crude

Meanwhile, if Canada’s energy is to catch a bid, it’s going to take more than our bumbling PM’s sudden realization that he needs to reverse his previous damage to the industry. The price of crude will need to break out to support any potentially positive support. You’ll note that the WTI crude oil chart is consolidating within a right angled triangle. Again, no signs of breakout….yet.

A breakout through the last high of around $63 might prove to be bullish. That would take crude out of the triangle decisively. Watch the seasonal trends (February) for a potential move.

Conclusion

Hot air and empty words will not help Canadian energy stocks. Rather than surmise on the next steps within the political process surrounding Canadian energy – I think it’s best to let the charts do the talking. I’ll be the first one to jump on the trade if we see a reversal in trend for the sector’s stocks. For now, I’ll treat the government talks with the oil industry like a UFO report. Until I see the evidence for it myself, I’m not a believer. Show me the breakout, or the little green men, and I’ll be happy to change my mind.

16 Comments

  • Hi Keith,

    You mentioned “Enbridge’s recent departure” I think you meant to say Encana.

    Thanks again for all the blogs you write, they are my favourite investment reads each week 🙂

    Josh

    Reply
    • Thanks Josh–refresh your browser and its been changed. I was thinking like our PM…aka..not thinking, when I wrote that name!

      Reply
  • Sad truths, great humour ! Enjoy your work, Keith.

    ps. did you see the CTV Soloman interview of our newest Infrastructure Minister? Canadians should NOT expect a return of business investment to Canada anytime soon.

    Dale

    Reply
  • The reference is usually described as Western Canada , not the west coast. The west coast proper does not have much to do with the oil and gas industry. As someone who lived in Saskatchewan for sixty four years I would request that you fix your spelling of it .

    I read your Blog all the time , read your articles in Investors Digest and watch you on BNN and find you very informative when it comes to technical analysis .

    Reply
    • Thanks for that William. I’ll correct that on the blog. Appreciate the correct verbage. As you can probably tell, I’m a fan of the importance of western Canada. Kinda important to eat and transport ourselves–for which you guys are the source!

      Reply
  • Unfortunately we have JT for the next couple of years! The sad part is that we have the GTA to thank for this. I guess people love paying taxes.

    Reply
    • There is a high concentration of government workers in Toronto (not to mention Ottawa, etc). The Liberals are notorious for feeding them (civil servants, teachers, etc)- producing more jobs, and providing higher salary and benefits -(aka expenditures)-The free market participants end up paying higher taxes to pay for these expenditures that benefit these civil servants. So yeah, that’s where the votes will continue to pool into the Liberal party. And that’s why the Liberals broke their promise to invoke the popular vote system–they realized they would eventually lose the popular vote, whereas first past the post ensures more seats in concentrated government employed regions.

      Reply
  • I read your comments about T2: “Trudeau has finally decided to stop campaigning against the oil industry” – I had to pinch myself, did I miss this in the news or something, or are we in some bizarre dream right now and cannot wake up ? In other news, The Bloc likes imported oil from the middle east but are against oil via pipelines from Alberta, then complain about the CN strike and are worried they are running out of propane… Crazy Times…. ps– nice sport jacket on BNN last week by the way…

    Reply
    • Thanks Warren. And yes, PQ have always been the guys who want their cake and to eat it too, then they want everyone else’s cake.

      Reply
  • Keith, even if we did have electoral reform i do not think you would be happy with the results. In the last election, the political parties that were considered “progressive” (Liberals, NDP, Greens, Bloc Quebecois) combined for over 60% of the popular vote. Parties with conservative values and policies less than 40%. Those overall percentages have not changed in a generation. Canada is a left of center country and I doubt that will ever change. If we adopted a more democratic electoral system the progressive parties would dominate. It is only under our current system that the Conservatives have a chance of advancing their agenda by winning a majority with less than 40% of the popular vote. That is why neither the Liberals or the Conservative want to change the current system.

    Reply
    • I love how the left has branded themselves “progressive” rather than “Marxist”. Karl himself was thought to be progressive.

      Reply
  • I agree that it is an unfortunate use of the term although Marxist may be a bit too extreme. We can call them whatever we want to, but the left leaning parties at least for now represent the majority of Canadians. I loved your blog today about learning to walk and the toddler analogy.

    Reply

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