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The former sector leader of the S&P 500 faces a critical test at support after the sellers found the sector in the middle of last month. Industry group leadership continues with Oil, Gas, and Consumable fuels while Equipment and Services falter. Short and intermediate-term breadth has become washed out in the space with the potential for a bounce, but will it be enough for the sector to recover?

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S&P 500 Energy

After slicing through the 50-day moving average to the downside in the middle of June, the Energy sector has found term support at the 535 zone in an attempt to stabilize the recent countertrend price action. Relative to the S&P 500, the group has rebounded from relative support at the highlighted zone, but has yet to recapture the ratio’s 50-day moving average to the upside, a development that Energy bulls will want to see.

Energy Equipment and Services are struggling at support near the 250 zone below a declining 50-day moving average. Note the brief breakdown below this level in late June, and the long lower range of the most recent candle, both of which signal a tug of war between buyers and sellers at this zone. Relative to the Energy sector, the group continues to underperform with the ratio moving lower coming off of a test of relative resistance at the highlighted zone below the ratio’s declining 50-day moving average.

Oil, Gas, and Consumable Fuels have found support at the 605 zone after undercutting the 50-day moving average last month in similar fashion to that of the Energy sector. Relative to Energy, the group’s relative performance continues to remain strong after holding the highlighted breakout zone to the upside above the ratio’s rising 50-day moving average.

Breadth

The percentage of Energy components trading above their 20 and 50-day moving averages both printed readings at the zero level over the last several trading sessions, signaling a potential wash out in breadth in the space. There were 201 instances since 2001 where the percentage of Energy components trading above 20 and 50-day moving averages both equaled zero for a median gain in the Energy sector of 5.95% with a 57.81%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 52 trading days out at 7.42% on a slightly improved 58.85%-win rate, so consideration should be given to hold times.

This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.

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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.