After recovering from an initial dip in early January, the iShares Dow Jones US Energy Sector ETF (IYE) has shown nothing but strength, up over 10% year-to-date.
However, the broader index has coughed up 3.11% in gains in the past five days alone, and investors are wondering if the pullback is healthy or a sign of more pain to come following a break in trend.
The price of oil has shown weakness over the past month or so, dipping to around $42 per barrel. Responsible for some of the recent price decline was a report issued by the U.S. Energy Information Administration which stated that domestic crude supplies rose by 1.7 million barrels for the week ending July 22 as short-term supply disruptions are fading.
Analysts had expected a 2.6 million barrel shortfall.
Even China is participating on the supply side, ramping up their energy exports (distillates) and pushing unutilized barrels to nearby markets in the region.
With that in mind, we’ll now look at some of the key players in the industry to see how the deterioration in earnings (-80% earnings growth) and oil supply concerns are affecting the prices of their stocks.
Energy Stocks Cutting Into Earnings Growth: ConocoPhillips (COP)
ConocoPhillips (NYSE:COP) explores for, produces, transports and markets crude oil, bitumen, natural gas and liquefied natural gas (LNG). In the chart above, you can see that COP has been struggling just to keep its proverbial head above water.
Profit Scanner alerted members that the stock was beginning to face significant downward pressure back on June 10, when COP was trading for $44.51 per share. Since then, five more bearish event alerts have been posted. COP now trades for just $40.61 (-8.76%) and has since fallen below its 50-day moving price average.
The closest area of support can be found at $38.98, so the bearish trade is still in play.
Energy Stocks Cutting Into Earnings Growth: Chevron Corporation (CVX)
Chevron Corporation (NYSE:CVX) is another crude oil and natural gas explorer involved in the development, production and transportation of energy to domestic and foreign markets.
Unlike Conoco, Chevron has held up quite well. Although CVX is just starting to show signs of weakness, the stock hasn’t sliced through its 50-day moving average just yet.
Investors will be monitoring $102.29 support closely to see if company will simply base sideways from there or pull back significantly as some of the company’s peers have already done.
Profit Scanner had issued five intermediate-term bullish alerts going all the way back to Nov. 6, 2015, but broke that streak when issuing an “Inside Bar” bearish event alert on July 22.
An Inside Bar (bearish) indicates a possible reversal of the current uptrend to a new downtrend. Often, the immediate effect is trend exhaustion and, potentially, a reversal.
Energy Stocks Cutting Into Earnings Growth: Exxon Mobil Corporation (XOM)
Exxon Mobil Corporation (NYSE:XOM) is engaged in the exploration, production and sale of crude oil, natural gas and petroleum products. Like Chevron, Exxon Mobil has held up fairly well while the broader energy indices have been in decline since early June.
Again, we’re seeing price come down to test its 50-day moving average in an effort to either verify strength or justify taking profits in an overbought position. The last two event alerts have been bearish, starting with deterioration in the Relative Strength Index (RSI) on July 8 when the stock closed at $93.54 per share.
With XOM now trading at $91.31 (-2.38%), you can see just how quickly Profit Scanner is able to pick up on underlying weakness in virtually any tradeable security.
Profit Scanner tells us that intermediate-term support doesn’t come into effect until XOM hits $80.08 per share. If realized, investors playing the stock short would capture gains of up to 12.29%.
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