OIl Rally Ends

Friday Jan 24, 2020

Energy Rally Ends

A slide in oil prices pushed shares of energy companies in the broad index down 4.7% so far this month including a .4% fall Thursday.

Sagging Oil and Gas Sector Darkens S & P Profit Picture, WSJ

We had thought the price of West Teas Intermediate WTIC would stop around $57 and rally to $70. This scenario is now a low to no possibility as energy markets declined to new levels across the board this week.

WEehad mentioned the huge outside reversal eleven days ago might e a big negative for WTIC. This has turned out to be the case. That day oil topped over $65 and fell below $60. It has never recovered above $60. The daily price is now under the 200-day moving average MA. On Thursday the price dropped below last support of $55.02, touching $54.77.   The close of $55.59 is probably just a last attempt at a come back which is failing again this morning.   Crude has a triple bottom going back to June around $51. That becomes our near term target. But double bottoms tend to hold while triple lows often do not.

Energy ETFs XOP and XLE are in free fall. Ominously XOP failed just under its 200-day MA. At $20.60 it is below all four moving averages I track. XLE has just violated its uptrend line and is also below all MAs.

The price behavior of Exxon Mobil has been troubling for quite a while. The reason is that it appears XOM is not generating enough cash to run the company, re-invest to replace oil sold, and maintain its dividend. XOM never came close to its moving average now at $71.23. It is already back at the previously mentioned triple bottom for energy prices which is $66-66.50 for XOM. As the ‘big dog’ in energy, XOM is often an early warning indicator both up and down.  Again,nothing positive from XOM is occurring.

Speaking of early warning indicators, natural gas is really falling out of bed. It topped in early November at $2.90. This week it collapsed from over $2.20 to $1.90 today. This waterfall projects much lower prices amid an already over sold condition.

Our bottom line is to expect lower not higher energy prices. China virus fears are also slowing trade world wide as cities are quarantined in that country.   Declining energy prices are also potential evidence of an economic slow down world-wide. Protests leading to near riot conditions around the world are also negative social mood events in terms of stability.