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After consolidating around the 50-day moving average for much of the 2nd quarter, Energy has moved to new highs for the year. Relative to the S&P 500, the trend of outperformance continues as the sector decouples from the price action of the S&P 500. Adding to the bullish evidence at the sector level, the percentage of Energy sector components making new one-month highs continues to print historically strong readings, with a rare development in play.

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S&P 500 Energy Sector

The Energy sector has rebounded to a new high after testing the rising 50-day moving average at the end of April. The group is now solidly above the rising 50 and 200-day moving averages, and there is support near the 610 level.

Relative to the S&P 500

The relative trend is bullish, trading near the highs of the current cycle. Support lines up with the rising 50-day moving average.

Strength in the Energy sector plays out despite Crude Oil remaining in a consolidation after reaching its cycle high in March. The consolidation has a rising support line (higher lows) and resistance near the $115 level that is currently being tested. A break of this level opens the door to a move to the March highs. We can’t help but wonder if a continuation of the bullish trend in Crude will act as a tailwind for Energy stocks.

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

After holding the support level at 270 that we highlighted in our last note on the space, the Equipment & Services industry group has rallied through the 50-day moving average to trade to new highs. The 50-day moving average is well above the rising 200-day moving average, keeping the bulls firmly in control of the trend.

Relative to the Energy sector, the group is neutral, testing the 50-day moving average from below.

Oil, Gas, and Consumable Fuels

Oil, Gas, & Consumable Fuels have also broken to new highs after testing the rising 50-day moving average at the end of April. The group is well above the rising 200-day moving average and has support near the 680 level.   

Relative to the Energy sector, the group is neutral, testing the 50-day moving average from above.

Breadth

The percentage of Energy components making new one-month highs remains strong, with Thursday and Friday’s trading sessions printing readings above the 80% level. There were 31 instances since 2012 where the percentage of Energy sector components making new one-month highs was greater than the 80% mark for a median gain in the sector of 8.88%, with a 68.97%-win rate over the following quarter. Even rarer, Friday’s trading session saw a consecutive print above the 80% mark after crossing above that level. There were only eight times where this development occurred for a median gain in the energy sector of 19.68%, with an 85.71%-win rate over the following quarter, and it’s worth noting that these developments happened after 2020. While these results for consecutive prints above the 80% mark should be received with reduced enthusiasm due to the small sample size and limited history, it is suggestive that breadth in the space continues to remain strong.

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.