Morning Comment: WTI crude, COP, SLB all Flirting with Resistance..

Tight range yesterday

As expected, it continues to be a low volume week this week…as investors await to hear what comes out of the meeting between President Trump & President Xi at this weekend’s G20 meeting. Although the activity has been very quiet all week, yesterday was the first time we saw minimal movement in the broad market. It rallied nicely on Monday…and sold-off on Tuesday due to a slightly more hawkish tone out of a couple of key FOMC members (including the Chairman). However yesterday the S&P traded in a very tight range of just 0.55%...and did so on breadth that was flat throughout the entire day.

MU gives the semis a glimmer of hope

There was a glimmer of hope from the semiconductors stocks…which had been acting quite poorly recently. The much-better-than-expected earnings out of Micron (MU) helped the SMH semiconductor ETF rally by almost 3%. The rally took this key leadership group right up to its June highs. During its mid-June pullback, the SMH was able to hold its 200 DMA and make a “higher-low”. If it can follow this up with a meaningful “higher-high” as we move into July, it’s going to be positive for the group. Don’t get me wrong, this key leadership group continues to lag badly behind the broad market, but the “glimmer of hope” that MU produced for the group yesterday was positive…so I'll be watching the semis very closely over the coming days. (1st two charts below.)

WTI crude is close to key resistance...COP is testing it.

WTI crude oil has moved back close to the $60 level…which means that it is getting closer to the top line of the “symmetrical triangle” pattern I highlighted over the weekend last weekend. This helped the energy stocks rally nicely yesterday, but I’d also note that an upgrade of ConocoPhillips (COP) helped the group as well. COP jumped 5% on the day…and this has taken it up to the top line of a “descending triangle” pattern. Thus, if it can rally further…and break above that line, it’s going to be quite favorable for the stock on a technical basis. This is particularly true because in its most recent dip, COP was able to hold its trend-line from the early 2016 lows…....Of course, XOM and CVX have the largest weightings in the XLE energy stock ETF (by far), but COP has the third-largest weighting. Therefore, if it can break-out of this technical pattern, it should help the entire group as well.

After several very poor years, SLB has some potential

Looking at another energy stock, believe it or not, Schlumberger (SLB) actually has some upside potential as well. SLB is a member of both the XLE and the OIH oil services ETF…and is a prominent member of both ETFs. It has the 4th largest weighting in the XLE and has #1 weighting in the OIH. The problem is that SLB has been a lousy stock for most of the last five years. Except for 2016…when is saw a very nice rally…the stock has been a complete “dog” since 2014. In fact, since July 1st, 2014, SLB has declined 66%...while the S&P 500 Index has rallied over 50%! (That under-performance of SLB vs. S&P 500…is almost as bad as the under-performance of the Yankees playoff record vs. the Red Sox playoff record over the past 15 years!...Like SLB, the Yanks did have one good year…but that’s it!)

Anyway, SLB still has a pretty strong correlation with the price of crude oil. It doesn’t always move to the same degree that crude oil moves, but it usually runs in the same direction. This could be quite positive if WTI breaks above its “symmetrical triangle” pattern…because SLB was able to hold its December lows during its most recent decline. Therefore, if it can rally further, it will mean that SLB has made a key “double-bottom” low. If this is followed by a break above $48, it would take it above its 1-year trend-line and follow this “double-bottom” with a decisive “higher-high”…which would be VERY bullish for the stock……Needless to say, SLB is a lot further away from breaking out than COP is right now, but if this beaten-down stock can ever gain some more momentum, it should be positive for the energy stock sector over-all.

In other words, even though I am not very positive about the energy sector right now…a successful break-out in these two stocks over the summer would lead me to change my stance rather quickly…ESPECIALLY if it coincides with a break-out in crude oil above its “symmetrical triangle” pattern.

Posted to The Maley Report on Jun 27, 2019 — 8:06 AM
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