A full blown bear market in energy resources and energy stocks has been underway
since mid-2014. History shows that the price of crude oil typically bottoms
before the broad stock market. And oil related stocks bottom at the same time
or later than the broad market.
The monthly chart below shows how oil bottoms several months before the stock
market does. This provides us with some insight on when we should start to
expect a bear market to end in the US stock market.
Many traders follow and trade shares of Exxon Mobil. And while the are big
money maker I do feel their share price is going to underperform oil for some
time. Based on my research XOM has acquired many new oil operations, which
many require $70+ per barrel to be profitable. This has cost XOM a considerable
amount of capital and is now left holding and operating business that are losing
money with the current price of oil sub $40 per barrel.
Base on my analysis, economic data and forecast I feel as though oil will
remain low for another 3-9 months below $60 per barrel. It will do this for
several reasons but what matter to us is that it forced the majority of oil
producers to cap and close off well and go out of business. While this is taking
place stocks and the economy will rebalance through a strong economic recession
and a bear market in equities that will last most if not longer than 2016.
Take a look at the US stock market average (SP500 index) in the chart below.
While this chart is a very basic and simple looking forecast understand that
the stock market internals and market breadth have completely collapsed just
s we saw in 2000 and again in 2008 months before the index collapsed and started
bear markets.
Oil, XOM, and Stock Trading Conclusion:
In short, I expect oil to find a bottom during the next 1-3 months. Oil services
stocks on average are likely to trade sideways and build a basing pattern.
These oil services stocks will not breakout and rally until the broad stock
market has bottomed which I expect to happen late in 2016 or early 2017.
Unfortunately, oil and oil stocks collapsed so fast without any retest or
pause for us to get short and enjoy the ride down for profits. I feel trading
oil and oil stocks will be choppy and tough in the near year. Last week subscribers
and I played the energy (XLE) for a quick two-day pop of 2-4% return depending
on entry and exit. These types of plays will continue, but the big trend trade
in oil and energy are a long way away yet.
