Morning Comment: Oil & gas stock poised to breakout again?

After falling for five straight days, the S&P 500 looks higher by about a half a percentage point this morning. There does not seem to be a key reason why the market is bouncing back this morning…other than the fact that it has fallen five days in a row and thus it has become a bit oversold on a VERY short-term basis. This does not mean that the bounce cannot last for a few days, but the market could/should get another test as early as tomorrow morning…when we get another important inflation number. The Consumer Price Index comes out tomorrow morning at 8:30 and the consensus estimate for the CPI is for a gain of 0.4% (+0.3% ex food & energy).

As we mentioned in our weekend piece, the CRB Commodity Index is bumping up against the top end of the sideways range it has been in for a couple of months now. (The CRB had rallied very strongly from last November through the middle of this summer. However, with the big pull-back in lumber and a decline in a few other commodities, the CRB had settled in the second half of the summer.) However, it is starting to rise once again. Lumber has stabilized…copper is rallying…and aluminum hit $3,000 in overnight trading for the first time in 13 years. So as you can see, this asset class has regained its strength from earlier in the year...and it is now poised for another breakout move. If this index can break above its summer highs in a significant way, it would move it out of its sideways range…and signal that a new leg to this rally in commodities has begun. (First chart below.)

Crude oil had acted a bit worse than the broad commodity index over the months of July & August. Instead of settling into a sideways range, it actually fell over 17%. However, WTI has bounced back nicely over the past few weeks, and it has regained the $70 level this morning. If this commodity can move above $71, it will take it above its short-term trend-line from the July highs…and give WTI a nice “higher-high” (above its early September highs). This should be quite bullish for the black gold. (Second chart below.)

That kind of move should be good for the energy equities as well. Right now, we are watching the 100-DMA on the XOP Oil and Gas E&P ETF. (That’s not a typo. We’re looking at the 100-DMA, not the 200-DMA.) The 100-DMA provide excellent support for the XOP in April. Therefore, when it broke below that moving average in July, it saw a mini free-fall and dropped 11% in just two days. Since then, that “old support” level has become the “new resistance level.” In fact, the XOP had bumped-up against the 100-DMA everyday over the last six days…but it has not been able to breach that level. Thus, if it can finally break above this moving average, it could see the same kind of substantial move that it saw the last time it broke the 100-DMA…only in the other direction! (Third chart below.)

The XOP is trading slightly above the 100-DMA in pre-market trading, so we’ll have to see how it does after the market opens. Of course, it will take more than just a “slight” break above that line to signal a breakout move, but the potential is certainly there. With this in mind, we continue to see the energy sector as a good one for investors for the rest of this year (and into next year as well).

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Sep 13, 2021 — 8:09 AM
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