Relief over the US election result was short-lived as investors turned their attention to the fiscal cliff. However, MoneyShow’s Tom Aspray highlights some picks in the energy patch that could be flashing buy signals.
The close in the stock market Tuesday was surprisingly strong and while the major averages are still locked in their recent trading ranges there were some industry groups that appear to have completed their corrections.
It has been a wild ride overnight in the stock index futures as they sold off in early reaction to the Obama victory, but by 3:30 am had rallied back above Tuesday’s highs. The sellers then again took over as the S&P futures are down over 12 points. It will take significantly more buying than we saw early this week to signal that the market’s overall correction is over.
The gold futures have been able to hold their early gains Wednesday which suggests that the correction in the precious metals may be over. A strong daily close on Wednesday is needed to support the bullish case. As I discussed last month, I still think that the recent correction is a buying opportunity.
There was also positive price action in many of the energy stocks and the increasing volume is a positive sign. One popular energy ETF and three energy stocks look attractive for new purchases on a slightly pullback as relatively tight stops can be used.
Chart Analysis: The Select Sector SPDR Energy (XLE) peaked in September at $77.35 and has tested the 38.2% Fibonacci support twice in the past two weeks. The Fibonacci retracement levels can be used to determine both entry and exit levels.
Marathon Oil Corporation (MRO) moved above its previous two highs Tuesday, but has not yet closed above the resistance at line d.
Next: A Look at Valero Energy Corp. and Hess Corp.
What it Means: Even though the overall stock market may give up Tuesday’s gains in Wednesday’s session, this is likely to create a buying opportunity in those sectors that already appear to have bottomed. In October I made the case that the energy stocks could lead the next market rally. They need to rally further to support this view. It will be important that the recent lows hold, which makes the risk control quite good on new long positions.
How to Profit: For those not already long Select Sector SPDR Energy (XLE) should go 50% long at $72.26 and 50% long at $71.72 with a stop at $69.87 (risk of approx. 3%).
For Marathon Oil Corporation (MRO), go 50% long at $30.88 and 50% long at $29.84 with a stop at $28.48 (risk of approx. 6.1%).
For Valero Energy Corp. (VLO), go 50% long at $29.68 and 50% long at $29.14 with a stop at $27.68 (risk of approx. 5.8%).
For Hess Corp. (HES), go 50% long at $54.42 and 50% long at $53.66 with a stop at $51.28 (risk of approx. 5.1%).
Portfolio Update: Should be 50% long Select Sector SPDR Energy (XLE) at $73.08 and 50% long at $72.74. Use a stop at $69.87.
Investors were 50% long the SPDR S&P Oil & Gas Exploration (XOP) at $48.66 or may have bought later at $55.32. Both were stopped out at $51.34.
For Weatherford International (WFT), investors were 50% long at $12.88 and 50% long at $12.46 and were stopped out at $11.79.