By: Costas Bocelli — May 7, 2020
Here's 13 Ways to Profit From This "Left for Dead" Sector
Today, let’s begin with a Pop Quiz…
Which of the 11 Broad Sectors in U.S. Equities is strongest right now in terms of relative strength?
[Cue theme music from "Jeopardy"]
TIme's up! Here’s the listing, in alphabetical order:
- Communication Services
- Consumer Discretionary
- Consumer Staples
- Health Care
- Real Estate
If you answered that Technology was strongest, give yourself a pat on the back.
The Technology Sector has been the dominant sector compared to the other ten for more than three years. And it remains so today.
That means of course that investors should maintain a healthy weighting of Technology securities within the portfolio.
But after Technology, which Broad Sector is ranked second in relative strength?
If you answered Health Care or Utilities, you’d be close.
Health Care is ranked third while Utilities is ranked fourth.
But the correct answer may surprise you. It’s a sector that’s been beaten down for quite some time.
It’s a sector that been a consistent cellar dweller, often ranking dead last in terms of relative performance.
Ready? It’s the Energy sector! And if you picked Energy, then you are in tune with the "true market". Bravo!
Yep,.. the Energy sector recently moved up to #2.
Now, relative strength rankings are medium- to longer-term in nature. So changes tend to evolve subtly.
But Energy sprung up the leader board with breakneck speed. Just three-weeks ago, Energy sat at the bottom of the rankings, in 11th place.
The last time Energy was ranked this high in the relative strength rankings was from July 2007 to July 2008. That’s 12 years ago!
Crude Oil prices back then were very different compared to where they are today.
In 2007 and 2008, West Texas Intermediate Crude oil (the U.S Oil benchmark) traded above $70 per barrel. It hit a record high of $147 per barrel in July 2008.
(Click any image to enlarge)
Today we find Crude Oil prices below $30 per barrel (It's currently at $26).
But just a few weeks ago, the June WTI Crude Oil futures traded as low as $6.50 per barrel, the lowest price in more than 20 years!
The Coronavirus pandemic caused demand for energy to plummet...
OPEC and Russia were engaged in a price war and were flooding the market with supply...
And with storage at full capacity, there was no place to put all that excess oil.
All of these catalysts whipped up a perfect storm for crude oil and for the Energy sector.
But since the low on April 21st, crude oil is trading +300% higher.
Energy now has the second-highest number of relative strength buy signals compared to all the other sectors. And over the past month, Energy has been the strongest sector on an absolute basis as well -- gaining +24% as the S&P 500 gained just +15%.
So we have price telling us that Energy is a strong sector. But here’s the thing...
Over the past few years, rallies in the Energy sector have been strong, but ultimately short-lived.
Over the longer-term, bullish exposure in Energy has been a tough trade. In fact, over the past year, Energy is the worst-performing broad sector, down roughly -40%.
So is this just another one of those bear market rallies? Or has the Phoenix risen from the ashes?
Of course no one can know for sure. But what we do know is that Energy has shown strength in the short-term. As we just saw, it recently returned to the top of the broad sector relative strength rankings for the first time in 12 years.
In the most recent edition of Sector Focus, our premium investment newsletter, we highlighted 12 individual stocks and one exchange traded fund (ETF) from various sub-groups within the Energy sector.
All of the investment recommendations are demonstrating positive relative strength versus the U.S. stock market.
With Energy still well below its secular highs, there are bullish opportunities in a sector that’s been left for dead, but now shows signs of a resurrection.
While it wouldn’t be fair to our paid subscribers to reveal all of the recommended securities, I will share one of them with you here.
Ballard Power Systems (BLDP) is a developer and manufacturer of fuel cell technology. The stock is in a long-term positive trend and is above its rising 200-day moving average.
We identified this investment idea (and the others) using Sector Prophets Pro, our data analytics product we designed specifically for self-directed individual investors like you.
And during this crazy-volatile time, investors can find it harder than ever to tell which segments of the market look attractive and which ones they should avoid.
Sector Prophets Pro keeps you in the know at all times.
And there’s no better time to have access to this kind of institutional quality research.
To find out more about Sector Prophets Pro and Sector Focus (where you'll find the rest of those 12 high-probability trade ideas...)
Give us a call at 855-822-0269.
Thanks for reading!
Until next time!