Just about all of Wall Street is bullish on oil stocks – with good reason…
Oil costs more than $81 per barrel. That’s more than double what it traded for at this time last year. And at this price, oil companies are printing money. So, everybody likes the stocks.
But, I’m not so sure…
Last month, I warned that the bullish percent index for the energy sector (BPENER) was on the verge of triggering a sell signal. And, BPENER sell signals are often followed by significant declines in the oil stocks.
Well… we got the sell signal last week when BPENER turned lower from extremely overbought levels.
But, so far, the energy sector has held up well. The Energy Select Sector Fund (XLE) was trading near $57 one month ago. It closed near $57 yesterday.
But that could change today, after the Organization of the Petroleum Exporting Countries (OPEC) meeting.
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The OPEC meets today and is expected to consider increasing production in order to meet the increasing demands from oil consuming countries. But most analysts don’t think that’ll happen…
They expect OPEC will keep production at current levels. That’ll keep oil trading at its elevated price. And, it’lll keep energy stocks in rally mode.
At least, that seems to be the popular opinion on Wall Street.
And, that sets up a possible “sell on the news” event.
Energy stocks have rallied in anticipation of OPEC doing nothing. So, that outcome is already priced into the stocks. Traders might look to exit positions once the news is out. And, that would lead to a selloff in the energy sector.
There’s also a slight risk that OPEC will elect to increase production. That news would likely push the oil price lower – which would, in turn, lead to selling in the energy stocks.
Either way, it’s hard to see how energy stocks rally even higher from here in the short term.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Today, we hear from one of our subscribers, Mike, about Jeff’s tapering essay on Monday…
I think the taper announcement has been mainly priced in already by the markets. However, I do see one more leg higher for the U.S. dollar, then maybe a potential reversal.
EUR/USD should be trading higher after this, but I think it has some more room to wiggle lower.
– Mike
And, Xiping comments on Jeff’s services…
Mr. Clark, I have two of your services, and I like your writing. It’s interesting and educational.
– Xiping
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].