Bloomberg: The surge in oil prices and a clutch of positive technical signals suggest energy stocks could continue to stay ahead of the wider equity market.
Brent crude has surpassed $100 a barrel on fears that Russian supplies would be restricted. Oil prices buttressed the energy sector, the only group in the S&P 500 index with a positive year-to-date return.
“Obviously, energy equity has a bit of a tail wind from the rising oil price,” Christian Mueller-Glissmann, managing director of portfolio strategy and asset allocation at Goldman Sachs Group Inc., said on Bloomberg Radio. He added that the market backdrop favors backing real assets like commodities.
Energy stocks are viewed as a hedge in an inflationary environment laced with geopolitical tension. But one risk to watch out for a big slowdown in economic growth.
Here’s what chartists are looking at:
Every stock in the S&P 500 energy sector has advanced so far in 2022. The group’s 23% gain during the period compares with an 8% slide in the overall S&P 500 index.
Head and Shoulders
The S&P 500 Energy Index traced a so-called “reverse head and shoulders” pattern last year and technical analysis gives a price target — or so-called measured objective — of 694 for the gauge. That’s a 33% climb from the last close at about 521.
A ratio of the SPDR S&P Oil and Gas Exploration and Production exchange-traded fund (ticker XOP) and the SPDR S&P 500 ETF (SPY) has activated what chartists call an ascending triangle. That suggests the ratio has further to climb — or put another way, that the oil and gas fund will post better relative performance.
Brent crude could end February with a monthly relative strength index above 70. Such a level is often viewed as indicating that an asset is due to turn lower. But the picture is different for Brent. It’s fashioned a monthly RSI topping 70 eight times in the past 25 years, and six months after that it delivered an average return of just over 16%, according to data compiled by Bloomberg.