Oil gets energized

  • Crude oil up +10% in past 2 weeks, +60% since Nov.
  • Energy sector has topped US market over past 3 months
  • Specific stocks have led sector rally

Crude oil’s biggest rally in years has helped the energy sector do something most traders likely thought was impossible in mid-2020: lead the stock market to the upside for more than an isolated week or two.

Crude has rallied nearly 65% since October 30, and March WTI oil futures (CLH1) have jumped more than 10% in a little less than two weeks, thanks to a high-momentum breakout at the beginning of the month:

Chart 1: March WTI crude oil (CLH1), 10/30/20–2/10/21. Crude oil futures price chart. Oil gusher.

Source: Power E*TRADE

On the stock side, as of yesterday the S&P 500 (SPX) energy sector was up around 30% over the past three months—roughly three times as much as the SPX itself—and barring a major flop today or tomorrow, energy is on track to be the strongest sector for the second-straight week.

Aside from the pressure the entire sector could come under if and when oil turns lower, there’s another issue energy traders may be considering amid the rally—evidence of some bifurcation within the sector. For example, some of the leading “oil-services” names (infrastructure, tech, supplies) have outperformed many of the high-profile oil producers they support:

Chart 2: Schlumberger (SLB), Halliburton (HAL), Chevron (CVX), Exxon Mobil (XOM), 10/28/20–2/10/21. Oil stocks comparison price chart. Oil-service stocks outperformed.

Source: Power E*TRADE

While Exxon Mobil (XOM) and Chevron (CVX) have posted solid gains over the past few months, they lag well behind oil-service bellwethers Halliburton (HAL) and Schlumberger (SLB)—a relative strength pattern some bulls may currently be factoring into their decision-making, and which may also come into play for bears in the event of rotation out of the sector.

And getting back to the “keeping an eye on oil prices” theme, in the event the market is able to extend its recent gains, the technical crowd may be casting its gaze on potential resistance around $63–$66/barrel—the price zone that turned back rallies in April 2019, September 2019, and January 2020.

Market Mover Update: Airline stocks have also done just fine since November, when vaccine breakthroughs appeared to boost the outlook for beaten-down travel and leisure companies. But some names have stood out recently—like Spirit Airlines (SAVE). After rallying more than 4% yesterday, SAVE is up more than 16% since breaking out above its late-January consolidation:

Chart 3: Spirit Airlines (SAVE), Delta (DAL), Southwest Airlines (LUV), SkyWest (SKYW), 10/27/20–2/10/21. Airlines comparison price chart. Breakout rally.

Source: Power E*TRADE

Its recent run has extended its gain since late October to more than 110%—nearly twice as much as its nearest competitor. But as noted in “Charting its own course?” the stock has shown a tendency to rally in advance of earnings (which were released yesterday) and pull back after them.

Today’s earnings include: Laboratory Corporation of America (LH), Molson Coors (TAP), Kraft Heinz (KHC), Zebra Technologies (ZBRA), Kellogg (K), Walt Disney (DIS), GoDaddy (GDDY), Yeti (YETI), Verisign (VRSN), Roku (ROKU), PepsiCo (PEP).

Today’s IPOs include: Bumble (BMBL), Bioventus (BVS), Apria (APR), Signify Health (SGFY), AFC Gamma (AFCG).

Today’s numbers (all times ET): Weekly jobless claims (8:30 a.m.).


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