3 Energy Stocks Sliding Down the “Slope of Hope”

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Earnings season continues this week with a heavy dose of energy stocks. According to our earnings database, the Energy SPDR (XLE) will see more than half of its component companies reporting their earnings results this week.

The heavy energy focus will no doubt have investors questioning whether right now is the time to try to catch this quickly falling knife.

Energy stocks have been under fundamental pressure for nearly a year now. Flagging oil prices sent the first warnings to investors wanting to time this bottom. Increases in international supply have slowed domestic production, which had been one of the best catalysts for higher prices. Slacking demand from growing economies like China are putting further downward pressure on the space.

And yet, sentiment for energy stocks — at least as measured by the XLE — reflects a generous amount of optimism. Our proprietary Composite ETF Analyst Rank measurement shows that XLE’s companies are still among the higher ranked group on Wall Street.

Energy stocks table

Another sign of optimism is a lack of short interest in the XLE. As of the last two weeks, the XLE was among the third least shorted group of companies within the S&P 500.

Negative technicals and optimistic sentiment almost always signal that a stock or sector is sliding down the “slope of hope” (think the opposite of the “wall of worry”), building a case for investors to steer clear of energy stocks — especially these three, which have reported earnings or will do so soon.

Energy Stocks Sliding Down the “Slope of Hope”: Exxon Mobil (XOM)

Exxon Mobil stock chart

The biggest of the group, Exxon Mobil (XOM), has lost more than 12% this year. Exxon shares are trading almost 4% higher ahead of earnings later this week, offering a tempting chance to exit shares before results are announced.

From a chart perspective, XOM stock will see overhead pressure at the $84 and $89 price levels, capping the intermediate-term upside to around 5%. The last two quarters earnings preceded 11% declines in the stock.

The downside risk is too large on this energy icon ahead of its Friday morning earnings report.

Energy Stocks Sliding Down the “Slope of Hope”: Anadarko Petroleum (APC)

Anadarko Petroleum chart

Shares of APC have been sliding down the “slope of hope” to the tune of 7 % year-to-date — a performance that was helped out Wednesday with a strong gain across the space on a short bullish move for oil.

Anadarko also was helped by an earnings beat — profits of 12 cents per share easily beat estimates for a 51-cent loss. However, that figure was down from the year-ago period’s 45 cents per share, as was revenue. Revs of $2.64 billion not only were off 40% YOY, but they were just shy of Street estimates for $2.66 billion.

Despite Wednesday’s bullish move, we see the downside risk for APC to be much heavier than any upside. This post-earnings buying should be seen as an opportunity to exit before Anadarko resumes its slide.

Energy Stocks Sliding Down the “Slope of Hope”: ConocoPhillips (COP)

ConocoPhillips stock chart

Selling volume has been on the rise into this week’s earnings announcement, indicating that some professionals are exiting the stock ahead of what is likely to be another disappointment.

Last quarter, ConocoPhillips (COP) missed expectations by a penny, but the recent announcements of cutbacks to deepwater drilling operations suggests that the company is expanding cost-cutting measures as the energy market continues to see fundamental pressures.

Mired in a long-term bear market trend, COP shares’ current downside target is $40 — roughly 30% lower than today’s price.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/energy-stocks-slope-of-hope/.

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