Monday, November 17, 2014

Energy – the long term picture:

Canadian investors – for some reason – are attracted to energy stocks – much like moths to a fire. The reality is the broader sector as measured by the S&P/TSX Capped Energy Index has delivered a price return of zero since 2005.

Many technical analysts are applying various studies to the crude problem but when in doubt I always first go to a very long term chart and seek out a primary trend line.

Our 1996 – 2014 monthly crude plot displays the 5-wave 1998 – 2008 advance that ended with the great July 2008 price spike. The subsequent 6-month collapse was followed by a rebound bull that peaked in April 2011. From there crude traced out a long 3-year symmetrical triangle that ended with crude breaking down to the current $75 level – which happens to be right on a very long term primary trend line. A failure here would have crude testing the lower support levels of $72, $51 and finally $38. I think the bottom is in at $72 support. This would be confirmed by a peak in the SPDR Consumer Discretionary ETF (XLY) – which is a beneficiary of lower crude prices.

Alert! Just before posting I was told that Dennis Gartman, the author of The Gartman Letter, during a BNN interview – predicted crude to fall to $50. That should be good news for the energy bulls because of Gartman’s track record as displayed by the Horizons AlphaPro Gartman ETF (HAG) which was “to provide investors with the opportunity for capital appreciation through exposure to the investment strategies of The Gartman Letter” The fund was shut down (shuttered) in March 2013.

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