As U.S. markets bounced moderately Wednesday, the bulk of the gains originated from energy stocks.
The rise in the price of oil due to the situation in Syria finally caused a pop in energy stocks. The S&P 500 energy sector rallied roughly 1.8% Wednesday, aided in large part by strong moves in Exxon Mobil (XOM) and Chevron (CVX). And for still more context, half the Dow Jones Industrial Average’s gain came from those same two energy stocks.
Oil itself rallied too, as it continued its break out of a multiweek consolidation zone. Commodities on the broader scale, as indicated on the below chart of the iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP) on Monday broke past a nearly 12-month-old downtrend, in a move that is intermediate-term bullish.
Exxon Mobil — as a result of its market-leading one-day rally — broke out of a multiday consolidation period Wednesday in a move that looks to have more near-term upside to complete. The chart of Chevron looks almost identical, and given that Wednesday’s bounce is closely linked to the situation in Syria, both energy stocks will likely move in good correlation in the near-term.
Oil and natural gas exploration company Concho Resources (CXO) on Wednesday pushed up against a resistance line dating back to September 2012. The stock has been in a consolidation phase for much of August, and Wednesday’s push up now increases the odds of a push past resistance sooner rather than later.
Even stocks such as National-Oilwell Varco (NOV), a provider of services as well as equipment and components used in oil and gas drilling, marginally pushed above an eight-month resistance area and continues to look promising for further increases.
All in all, many stocks related to the oil and gas business are looking promising for further increases in the near-term.
Important to note, however, is that oil tends to at least temporarily drop once U.S. military strikes begin. How energy stocks hold up on any potential pullback in oil after (if) a U.S. military strike begins will be the litmus test they need to pass for more investors to jump on this long-side trade.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.