With West Texas Intermediate crude oil breaking down below the $50 per barrel level again this month, energy companies in the oil and gas space have gone back to a familiar trend from late last year:
Pain.
While many of these companies have adjusted their operations as much as possible to cope, the simple truth is that most energy stocks simply rely on higher oil prices to keep their operations smooth and profitable.
Naturally, the negative price action in the sector’s stocks is showing up on the charts. Profit Scanner powered by Recognia has identified several bearish signs that this trend could continue.
Investors would be wise to treat these stocks with caution, or stay away from them altogether.
Energy Stocks to Avoid: Chesapeake Energy (CHK)
Click to Enlarge One such company is Chesapeake Energy (CHK), which has lost well more than 50% of its market cap since the start of 2015, and 25% in only the last month — powered in part by Chesapeake’s announcement that Besides one intermediate-term bullish technical event, Profit Scanner powered by Recognia is giving entirely bearish signals for this stock.
Last week, Profit Scanner identified five different bearish technical events, starting with short-term bearish readings on Momentum and Williams %R on Monday, indicating that CHK has entered a new short-term downtrend.
CHK was hit with a bearish MACD reading on Tuesday, as the 50-day moving average crossed below the longer-term 100-day moving average, also an indication that the trend is moving to the downside. Further technical pressure followed the next day, as the 4-day moving average crossed below the 9-day, which subsequently crossed below the 18-day.
Finally, on Thursday, Profit Scanner identified a bearish short-term KST (“Know” Sure Thing) reading, in which the short-term KST crossed below the KST moving average. When this indicator turns downwards, it usually means that a bearish development is likely to occur.
Energy Stocks to Avoid: Valero Energy (VLO)
Click to Enlarge Another name that has turned decidedly bearish over the last week is Valero Energy (VLO). After putting in some short- and intermediate-term bullish signals in early July, VLO is flashing several new bearish readings.
They began last Monday, when Profit Scanner identified a bearish Relative Strength Index (RSI) reading as the stock fell from the $68 level. The RSI for VLO recovered from its overbought condition as it fell below 70, signaling lower prices ahead because up days are no longer overwhelming down days to quite the same extent.
Mid-week, VLO was also hit with a bearish MACD reading. According to Profit Scanner, the MACD is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average called the “signal line” is plotted on top of the MACD to show bullish and bearish signal points, and the bearish signal on VLO occurred when the MACD fell below the signal line.
Additionally, a short-term bearish Momentum signal began flashing on Friday, which is calculated as a ratio of a given day’s closing price compared to the closing price 10 periods ago. When this ratio falls below 0, a bearish signal is generated.
The stock has now fallen back to its $64 support level, which served as prior resistance back in late April. If this support is broken, a drop to the 50-day moving average at about $62 would not be surprising.
Energy Stocks to Avoid: Helmerich and Payne (HP)
Click to Enlarge Helmerich and Payne (HP) is another energy company that has been hit by the decline in oil prices and, when WTI crude began to drop in mid-2014, HP traded lower in similar fashion. After hitting a five-year high close to $120, the stock has since fallen by over 50% and now trades at roughly $55.
HP lost another 8% last week following a Double Moving Average Crossover, as the short-term 50-day moving average fell below both the 100- and 200-day MAs.
A week earlier, HP experienced a shorter-term bearish moving average crossover, with the 4-day MA crossing below the 9-day and 18-day averages. Both bearish crossovers indicate that the momentum is to the downside, and Profit Scanner is forecasting a downside target of $31-$39 over the intermediate term.
Those price targets represent potential declines of 30% and 44%, respectively, although further support levels sit at $40 and the 200-day moving average. HP already fell through significant support at $60 last week, so a continued move lower could come quickly. Traders could look to take a bearish position if the $55 level fails to hold this week.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.
