All eyes appear to be on the Energy sector as it trades near the rising 200-day moving average. After printing readings in the minority late last week, the percentage of Energy components above their 200-day moving averages has regained the majority in the August 8th trading session. At the same time, Crude Oil is dangerously close to an important support level. Bulls in the space want to see Crude hold support.
S&P 500 Energy
The Energy sector is holding the rising 200-day moving average while trading below the declining 50-day moving average. Support at the January 2020 highs is the key level for the bulls to defend should the 200-day give way. However, breaking that moving average would further weaken the technical structure of the trend. If the bulls are going to regain control, this is the spot from which to do it.
Relative to the S&P 500:
The relative trend remains under pressure, below resistance, and the 50-day moving average. Regaining these levels would put the bulls back on top.
Just as the sector trades at a key level near the key 200-day moving average, the price of Crude Oil has undercut its 200-day moving average. Crude has price-based support at the $86 level. Energy bulls do not want to see this support level give way.
Drilling down on the two main industry groups within the Energy sector, we can see that both groups have traded to new highs.
Equipment & Services
The Equipment & Services industry group has made a steep decline since early June. The group is below the 50 and 200-day moving averages and has lost price-based support. Below these important levels, the bears are in control of the trend.
Relative to the Energy sector, the bears are also in control of the trend. The ratio is trading back at levels seen during the depths of the COVID crash, below the declining 50-day moving average.
Oil, Gas, and Consumable Fuels
Despite also coming under pressure, Oil, Gas, & Consumable Fuels remain above the rising 200-day moving average. The near-term trend is weak, below resistance, and the 50-day moving average. These levels must be reclaimed to make the bullish case on an absolute basis.
Relative to the Energy sector, the group is in a bullish trend, above the rising 50-day moving average.
Breadth
The percentage of Energy components trading above their 200-day moving average moved above the 50% mark in the July 8th trading session after printing readings in the minority in the sector selloff last week. There were 87 instances since 2000 where the percentage of Energy components trading above their 200-day moving average for a median gain in the sector of 1.86%, with a 58.33%-win rate over the following quarter. It’s worth noting that median gains have tended to peak 41 trading days out at 3.82% on an improved 61.90%-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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