Thursday, August 27, 2015
Buy Cheap Energy While You Can
Good news all around the markets today as everyone seems to be seeing green. The plantlike growth that has stemmed from the major corrections didn't come easy as Chinese and U.S. stocks had to see buds worth billions of dollars nipped before blooming could occur. The Dow Jones Industrial Average, Standard and Poor's 500, and NASDAQ all saw significant gains up to 2% upon opening and throughout the morning. Technicals on the indices reveal the relaxation of oversold momentum after the crash as the RSI statistics increase to the early 40's. MACD indicators reveal similar momentum shifts as a trough formed two days ago forms into a smooth parabolic shape on the upside. Investors will be wondering how far the handle will increase as retracements are already above the 50% levels for DJIA, S&P, and NASDAQ. The exchange has formed a perfect bull market for traders buying at the bottom on the 25th and making windfall profits in every industry. If that's not the case, losing bets are being traded in for more realistic long positions in a surging market now bolstered by GDP data that outscored its predictions. The Department of Commerce initially forecasted growth of 2.2% for the second quarter, but statistics supported an economy strengthening at a rate of 3.7%, higher than a traditional 3% predicted for developed economies in growth studies.
There's not much to say about market predictions except that investors should be looking for increases to slow down as the time to buy has already passed. While the technicals still hint at the potential for more momentum, the corrections seem to be strong enough to suppress Dow levels below 17,000. A complete retracement to those levels would just be a repeat of speculator sentiment overvaluing stocks to the inflated prices just a couple months ago. The same could be said for energy prices as the WTI benchmark posted a record gain only seen before in 2009. A jump of 10.3% or $3.96 came after a U.S. stock market rebound and rig data adding three more oil rigs onto the utilization count despite four offshore rigs going offline. While the global rebound was a major source of positive sentiment, energy speculators rejoiced as exporting based economies such as Venezuela, Algeria, and others pleaded for an emergency OPEC meeting to cut production and raise crude oil prices. On that news, I encourage buying into the oil and gas sector which could become the industry speeding out of this crash with doubled support from economic recovery and crude oil price increases. Price levels around $42 or higher provide better margins for companies looking to operate at the $40 level, and stir up hope for those looking for $50. For now, even though you already should have, take part in the bounce of the energy sector. XOI, a smorgasbord of 20 crude oil services, jumped 53.89 points. an increase of 5.08%.On top of that impressive performance, the energy sector showed overall gains of 4.91% for the day with many oil companies being upgraded to "Buy" status by Morningstar. The moral of today's story is buy, buy, buy into oil and gas services which are looking to make a nice rebound. Everyone from integrated services to smaller companies searching for cash flow to establish market share will see a rise in stock price. A long position in any well-established oil and gas service (or a smaller company for more risk/return) will provide upside benefits to any portfolio.