The price of oil has been running higher lately.
A barrel of West Texas Intermediate Crude (WTIC) traded for $59 six weeks ago. Today it’s $65. That’s a 10% increase in a month and a half. And it sure looks to me like oil is poised to run even higher…
Take a look at this long-term chart of oil…
In January, oil broke out to its highest price in three years. It then came back down and retested the breakout level as support.
Support held. Now oil is attempting to push higher again. If WTIC can break above January’s high at about $66.50 per barrel, then the next resistance is all the way up near $78.
That sort of move should ignite a strong rally in oil stocks which, thanks to the weakness in the broad stock market, are trading at the same level they were last August – when oil was priced at $50 per barrel.
In other words, while oil is almost 30% higher than where it was last summer, oil stocks haven’t gained any ground.
Of course, the weakness in oil stocks is largely a result of the weakness in the broad stock market. The energy sector – as represented by the Energy Select Sector SPDR Fund (XLE) – peaked in late January along with the stock market. XLE traded as high as $77 per share back then. Today, the fund changes hands for just over $67.
So, when the market’s correction finally ends – which, if it didn’t happen earlier this week, could be any day now – and buyers step up, oil stocks will likely rally along with the market. And if the price of oil breaks above $66.50, then oil stocks will have tremendous potential to play “catch up.”
Best regards and good trading,
Jeff Clark
Reader Mailbag
Today, a response to yesterday’s Minute, “The Correction Is (Almost) Over.”
For what it’s worth I am not so sure we will not have a further correction. This has been too good to really be true.
I think long term is bullish in general but we need a reversion to the mean in general, so… But what do I know? I’m not a millionaire yet.
Another earnings season starts soon…
– Jeffrey
How have you braved the past quarter’s volatility? Is the correction over… or just getting started? Send us an email right here.