I mentioned the likes of COG LNG REXX, among others, as energy plays on my radar for long setups over the past few weeks. But beyond them, the larger picture is still whether the market can sustain a meaningful rotation into the global industrial, materials, and energy complex. I know I have been repetitive in positing that scenario, but the more I look at charts on various timeframes in the aforementioned sectors, the more I am convinced we are dealing with an affair where the stakes are high.
In other words, rotation is a weapon of the bull. And the abnormally extended staples, utilities, and indeed many healthcare stocks have now become historically rich fundamentally on top of presenting an asymmetrically poor reward potential when viewed through the prism of risk, technically speaking.
In essence, fund managers had lost their discipline, chasing JNJ up twenty weeks in a row while eschewing supposedly cheap materials and even energy plays. Technician Carter Worth accurately describes this phenomenon as classic “bifurcation” in the market, which is usually a term all too casually thrown around. In this case, though, the true definition had been met of a tale of two markets. Of course, the extended and rich staples and other sectors can become much less so after a few weeks of correcting, as the utilities have already been doing.
But in the meantime, rotation into energy has delivered a few small tapas without the full meal. If the energy/materials cannot sustain a capital rotation this time around, like it did at the tail end of the 2003-2007 bull, you are talking about the potential for a sluggish and narrow rally higher into the summer, at best, or worse yet a deeper correction than many expect. After all, the potential for the energy/material plays to run higher virtually unimpeded like the solars have is to be taken seriously given that they are anything but unprecedentedly or uniquely extended, while we know most defensives and consumer discretionary stocks certainly are. The issue then becomes whether the conviction and sustainability is there on the part of those who control large sums of money.
As an example, consider oil services giant Schlumberger. If you want to visually see a high stakes affair, note the significance of the $75 level dating back several years. In addition, you can see price working towards resolution of a multi-year pattern of lower highs, but higher lows too, forming a symmetrical triangle.
I suppose I could be dramatic and declare that whichever way SLoB breaks, so too will the market. But I will let you draw your own conclusions on this one.
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That’s an excellent assessment of where we are and where we may be going. You’re pretty good at this stuff.
Thanks, dominator!
Nice screenshot. A few years ago I was heavily mixed in with the poker community. I chatted with 2 pros for about an hour on how bad Jamie Gold was at poker.
LoL!