Oil’s extended losing streak now faces a key test

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Crude oil ended Friday with its 10th straight session of losses, a losing streak not seen in more than 34 years. Those losses have pushed it deeper into a bear market, having plunged nearly 22 percent from its 52-week high.

Such a steep sell-off has made a mess of the commodity’s charts, says Matt Maley, equity strategist at Miller Tabak.

“Obviously when you get a 20 percent decline, you definitely get some technical damage,” Maley said on CNBC’s “Trading Nation” on Friday.

“Not only have we broken below the 200-day moving average that a lot of people have talked about but, much more importantly, we’ve broken below the trend line going back to the early 2016 lows so that’s a problem,” he said.

West Texas Intermediate crude fell sharply below its 200-day moving average at the beginning of the month. The commodity had not traded significantly below that level since the summer of 2017.

“What’s the next support level? That doesn’t come in until you get down to the $57.50 level. That was the February lows… You break below that, we’ve got real problems,” said Maley.

Crude would need to drop another 4.4 percent before reaching that level. It has not traded that low since December 2017.

While oil has plummeted, energy stocks have managed to break free from the typical trend, noted Erin Gibbs, a portfolio manager at S&P Advisory Services.

“Normally energy stocks are highly correlated to oil, but in this case we’ve seen a big divergence for the entire month so far of November and they’ve actually been up,” Gibbs told “Trading Nation” on Friday.

Gibbs said that energy valuations appear to have stabilized at around 14 times forward earnings, considered relatively cheap to the broader markets, while oil companies expect to hold onto healthy profits next year.

“From an energy stock perspective, this actually looks like a decent time to buy in, because it seems like valuations have stabilized and profit growth seems to be very stable going forward,” said Gibbs.

The XLE energy ETF (exchange traded fund) has increased more than 3 percent over the past two weeks. Over that same period, crude has crashed 11 percent.



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