Energy and Oil: Value & Momentum Could Offer Significant Upside in 2018

Learn how the oil services sector may offer significant upside and excellent reward vs risk trades going into 2018.

Energy and Oil: Value & Momentum Could Offer Significant Upside in 2018

To follow up on our bullish Energy sector blog from November 5, 2017, the oil services sector continues to show many long term trend reversals and may offer significant upside and excellent reward vs risk trades going into 2018. A key part of my trading programs keys off moving averages, and in my longest term program, the 200day moving average is the core.

Many oil services names have recently crossed above their 200 day moving averages in the last few weeks and offer considerable upside potential if the trend continues. See the data below.

Data as of 12/27/2017

Name Symbol Market Cap
($)
All-Time
High
Current
Price ($)
% from
High
Over
200sma
Transocean RIG 4.1B 129.61 10.72 -91% Yes
Diamond Offshore DO 2.4B 94.06 18.71 -80% Yes
Whiting Petroleum WLL 2.3B 371.68 26.26 -92% Yes
Noble Energy NE 1.0B 46.94 4.43 -90% Yes
SPDR S&P Oil & Gas
Services ETF
XES n/a 47.04 17.14 -63% Yes

 

DO - Monthly

domonthly.png

RIG - Monthly

rigm.png

XES - Daily

xes.png

XES - Monthly

xesmonthly.png

To clarify, potential reward vs risk means that by setting downside based stop loss prices when taking a position, one can reasonably quantify downside risk. Of course, price gap cans and do happen in stocks, but if the upward trend continues in this space, there could be significant upside in regards to how far they have declined from all time highs.

Of the ten worst performing industries in the Finviz database YTD, Oil and Gas Drilling E & P is the second worst performer and Oil & Gas Equipment Services is #9 from the bottom.

oil-and-energy-industry-performance-year-to-date.PNG

As we look into the data however, the more recent term activity is more constructive. From the Finviz database.

Name Count YTD
Up/Down
MTD
Up/Down
Week
Up/Down
Oil & Gas
Drilling E&P
45 11/34 29/16 39/6
Oil & Gas
Equipment Services
56 13/43 45/11 44/12

oil-gas-drilling-exploration-earnings-and-profits-year-to-date.PNG

oil-gas-equipment-services-earnings-and-profits-year-to-date.PNG

Over the years, many of the biggest winners can be found by identifying long term momentum reversals early and sitting in winning positions. Any outcome is always possible, but the reward vs risk odds in this space are very attractive.


Disclosure:  at the time of writing this blog, we are long DO, WLL and XLE.

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