The energy sector is expected to be the worst performing sector in terms of YoY earnings, according to FactSet. Maybe, but given how much Oil has advanced this year, it can’t be all that bad I’m thinking! Even Bespoke came out with research that predicts Pre-Earnings Season Pessimism is a Good Thing
So then I get excited about the idea of going long Oil and Gas companies into earnings. I highlighted the idea this weekend in a bullish case: Energy Companies Play Catch Up To Oil for clients.
There is also a technical analyst I greatly respect – Martin Pring. He thinks we may be on the verge of some commodity market rally. He has his own Inflation-Deflation Index that is telegraphing a break-out. (I remember the 10-yr looked just like this before yields reversed sharply and fell 2.759 March 1st to 2.356 March 27th…)
I wrote this past weekend even:
I will keep an open mind: The world may be in for a rebound from better than expected PMI from China, upbeat ISM and better than expected March Employment Report in the US. If so, we could get a possible global reflationary surprise in which case I want to go fishing for oversold Energy plays.
So here’s where I play Devil’s Advocate and look at the What-If-We-Don’t idea, and what might telegraph a big disappointment (beyond the macro data which points strongly to slowing global growth). Before I get toooo carried away with this bullish energy and commodity theme, I decided to check in on my Intermarket Tells to see what they project and I can tell you I see a Big Inflection Point brewing that will likely hinge on those earnings and markets reaction to them.
Here’s a daily chart of the popular Commodity Index DBC (comprised mostly of oil) with my bond ratio in bottom panel along with key notes. Check out the double resistance (red arrow) – for both the index and the ratio! What are the chances? Not high I bet. This will take a “jumping the shark” action or more likely a push back to reset with more energy. Doesn’t help that Crude (WTI) has advanced 61.8% off the December lows…
So I decided to pull back in time and check out another view – this time Monthly and the popular CRB Index. Yeah, that’s got a test of double resistance too (yellow arrow):
I have no other words at this point. Just big eyes.
Happy Trading and don’t forget to hedge!
Samantha
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At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. In addition to running a LIVE Trading Room, Samantha offers her Macro-to-Micro trade set ups through a LIVE Portfolio (across multiple time-frames) with Real-Time, Brokerage-Triggered Trade Alerts (sent via SMS/email/Web). Every trade has a Time-frame, Thesis, Trigger, Entry/Stop/Profit Price based on the underlying asset as well as Option Tactic. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.
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