Time to Ease Back into Crude Oil Stocks and ETFs?
Let’s face it – crude oil and crude oil stocks have been getting absolutely killed lately. The price of U.S. crude oil (West Texas Intermediate) has swiftly fallen into bear market territory (generally defined as a decline of 20% or more from the most recent major peak) in the last month or more. And things don’t seem to be letting up. The sharp and relentless fall recently in crude oil prices established a new one-year low last week, causing some over-leveraged energy traders and hedge funds to go out of business.
But let’s step away for a moment from looking at crude oil futures and look instead at oil-related companies. Yes, the fall in oil companies has also been relentless in the past month and a half due to the plunge in crude oil prices. But technically speaking, the chart of XOP (SPDR S&P Oil & Gas Exploration & Production ETF) appears to be hammering out a bottom.
Crude Oil Price Catalysts
Fundamentally, the drop in crude oil has been driven in large part by both domestic and international output being consistently on the rise, as well as the global demand outlook having declined. The next major catalyst for crude prices will undoubtedly be what OPEC (Organization of the Petroleum Exporting Countries) decides to do … or not to do. There are expectations that OPEC may cut its output next month to help deal with the oversupply situation. Oil traders, though, are not entirely convinced as to: 1) whether OPEC will cut supply by a significant enough amount, and 2) if such cuts will make any appreciable dent in the global supply glut.
Technicals Suggest a Rebound
In the meantime, oil companies are certainly down – but not quite out. XOP is down around 7% year-to-date as of Monday, and has fallen sharply since early October highs. However, price has now formed a double-bottom pattern near the lower border of the 100-day linear regression. Oscillators are also emerging up from oversold, suggesting that a rebound may be in store. Finally, although the medium-term trend is decidedly down, the longer-term trend is still up. All of this could mean a possible downside exhaustion and recovery for XOP on the horizon, as well as a potential opportunity to ease back into buying crude oil stocks and ETFs.
The Technicals Rating
The Technicals gives XOP a bullish rating of 6 (on a scale of 1-10, with ’10’ being the most bullish and ‘1’ being the most bearish). Below are some of the key technicals for XOP, as well as other relevant information, that helps paint a slightly bullish picture of the ETF:
- Price Position vs 200-Day SMA: -12.30% (below) – BEARISH
- Position vs 50-Day SMA: -13.09% (below) – BEARISH
- Position vs 20-Day SMA: -4.31% (below) – BEARISH
- 200-Day Trend Slope (Linear Regression): BULLISH
- 100-Day Trend Slope (Linear Regression): BEARISH
- Stochastics (14,3,3) Level: Emerging from Oversold – BULLISH
- RSI (14) Level: Near Oversold – BULLISH
- Position in Bollinger Bands: Near Lower Band – BULLISH
- Market (S&P 500) Long-Term 200-Day Trend: BULLISH
- Market (S&P 500) Medium-Term 100-Day Trend: BEARISH
- Mean Implied Volatility (IV): 41.28% (52-week range of 22.71%-46.69%) – BEARISH
Overall The Technicals Rating for XOP: TTTTTTTTTT (6 out of 10) – SLIGHTLY BULLISH
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart