Ironically, the energy sector, via the Energy Select Sector SPDR (NYSE :), is in a downward trend in the long term. This means that the current low point is perhaps the ideal starting point that investors dream about.
Certainly, the energy market, primarily complex, has become more complicated with a multitude of exceptional circumstances: the trade war, the longest expansion ever, almost zero in the US and negative rates abroad.
Moreover, energy managers are confronted with a growing demand for renewable energy sources. The range of the variant, often contradictory trends that analysts must master to give an estimate of where prices can go, is huge.
Oil demand is slowing down, fund managers are balancing on the size and costs of Aramco's IPO and Brazilian oil campaign is characterized as a "total disaster". So why invest in energy companies now?
Energy ratings have remained the lowest over several time frames. The sector has been undervalued at -6.64% in the last 6 months; -13% over the past 12 months; and finally, -30.85% over the past 5 years. And every time it was the only sector in the red.
Energy companies escalate the buy-back and increase the dividend.
Iran's sigh of war is likely to disrupt oil supplies in the Middle East.
The outlook for the US economy is that it will pick up, thanks to a resolved trade dispute and a Fed whose support is growing.
This all shows how extremely complex the foundations of the sector are. The following technical analysis illustrates some of the developing trends in the graph.
The Energy ETF is in a long-term trend, with rising peaks and troughs. The current malaise is considered a support re-test according to the principles of technical analysis. Although, a support can always fail – especially with so many different drivers – the odds are in favor of a rebound and possibly an ongoing upward trend. Anyway, from a risk: reward perspective, this is the ideal access point. The position corresponds to the trend and is very close to its support for a relatively small exposure.
Why the mismatch between the sector and oil? Firstly, it is already in an upward trend and has reached its lowest point. Secondly, equity investors are future-oriented and tend to lead the way.
Trading Strategies
The energy sector fell after Chesapeake Energy Corporation (NYSE 🙂 disappointed and disappointment was found yesterday. The fall completed a bearish pattern, confirming resistance from the top of the falling channel since the April high at $ 69. We are waiting for the price to break through the falling channel or return to the long-term uptrend line, depending on risk aversion.
Conservative traders would wait for the price to break out and complete a full return movement that confirms the trend reversal.
Moderate traders are likely to wait for the return movement for better access, not necessarily to confirm support.
Aggressive traders can go long either on a return to the upward line and the lows of August-October above $ 55, or for an upward breakthrough of the falling channel.
Trade sample – long entry position
Admission: $ 62
Stop loss: $ 60
Risk: $ 2
Target: $ 68, below the April peak
Reward: $ 6
Risk: reward ratio: 1: 3
Note: The trade sample is only a sample. It only tries to play the odds and shows important components of responsible trade.
