A recent move in energy stocks has naturally included some technically important moves in individual names — one of those being independent energy company Hess (HES).
It’s no secret that commodities have showed great relative outperformance vs. equities thus far in 2014. This can be looked at in one of three ways:
- Commodities are rising due to inflation expectations
- Commodities are rising due to demand expectations
- Commodities are rising due to a still weakening dollar and a weak dollar policy.
Rather than staunchly representing either of those views (although I am mostly in camp No. 1), the most important point is that investors should watch commodities closely right now, because they should give us clues as to the direction of equities in coming months.
Interestingly, while many are aware of the rising commodity prices, I heard few people point out last week’s 2% rise in the price of oil, and even fewer people noticed the crucial breakout in energy issues such as Hess stock last Friday.
At the end of last week, the Energy SPDR (XLE) — an important energy stocks ETF — quietly broke past an important multimonth resistance line and now looks to be on its way back to the all-time highs from 2008.
And along with XLE rode Hess, which rallied by about 1.5%
Hess stock, through the long-term lens, now trades at a resistance line dating back to early 2011; for the past few months, it had been consolidating near this line. This type of tight price consolidation or churning below a multiyear resistance line can lead to some powerful moves. In the case of Hess stock, it looks to be just a matter of time until a break past this line takes place.
Given the duration of this resistance area, it is best to draw the lines with a crayon as opposed to a pencil. In the case of HES, this means that only a break past the $85 area would be a significant enough breakout to be trusted.
On the daily chart, note that Hess stock broke past a multimonth resistance line last Friday after having coiled up in an even tighter range over the past few weeks. The breakout is the result of constructive price action since last summer and the successful formation of a higher low early last month.
In the coming months, barring any sudden bearish reversal of the bullish picture, Hess stock looks to have room into the high $80s or low $90s.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.