Energetic About Energy?

Energy Experts are Everywhere

Energy is a polarizing sector of the market. Its political, global macro, and environmental implications lead to many talking heads constantly predicting its future. Predictions are fun; they add a level of excitement and give us a chance to inflate our egos when we're right, and when we're wrong, we can simply say it's hard to predict and pivot. I prefer a less sexy and more practical approach: reacting. Reacting is boring, elementary, and much harder to sell, but most successful trading is exactly that. Listening to the message of the market and reacting to what it's telling you. So let’s dig into the energy sector and see what Mr. Market is saying.

Step 1 - Zoom Out

A zoomed-out chart shows that post-Covid crash and inflation rebound, the energy sector has been a certified organic turd. Over the past two years, it’s established a messy $20 trading range from $75 to $95, with a few false moves while remaining a persistent market underperformer. Numerous "potential" catalysts have yet to bear any fruit.

Step 2 - Zoom In

Zooming in, we can really see how energy has enjoyed playing a game of whack-a-mole with investors at the $95 area. We’re also starting to see a pretty constructive picture setting up. The downtrend from the April highs has broken, a trend reversal base is building, and the relative underperformance is starting to poke its head out. But once again, here we are without a decisive resolution.

Step 3 - Review & React

I don’t know what’s next for energy (neither does anyone else). I could lie and say I’m certain this will resolve higher, but we truly don’t know whether this is another round of whack-a-mole or the start of a new leg higher. If it’s the next leg higher, I want to see bulls keep RSI above 50 during any pullback and either a consistent close above $95 or a momentous one. Until then, I remain on the sidelines, leaving the predicting to the “professionals.”

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