We have been talking a lot about China, emerging markets, and commodities price declines over the past few months. In short, we see a slowdown for some economies and an attendant decline in share prices for firms like Caterpillar–makers of mining and construction equipment, other materials firms, and perhaps biggest of all, energy firms involved in oil and gas.
Of course, the carnage in the oil market has been linked to more than just lower demand in China. Here we have a host of theories: massive increases in supply driven by the fracking boom in the US, a postulated Saudi ploy to flood the market and undercut US frackers, the end of sanctions in Iran bringing still more crude to market, etc.
While lower energy prices may have killed the latest boom in Texas, Oklahoma, Pennsylvania, and Ohio, they have been a boon to US consumers still tied to their automobiles, the trucking industry, auto manufacturers, airlines, and other companies sensitive to the price of refined crude.
Regardless of the benefits for US-based consumers and businesses, declining prices have certainly beat up the share prices of some oil industry players. Now, some analysts believe that trend may be coming to an end and that it is time to consider buying oil stocks once again. This call is not based on fundamental data or driven by news, but rather found in technical analysis of major industry players and some surprising price action so far this week.
Basically, the chart readers argue that for many oil companies, the technicals show an extremely oversold market with potential double bottoms achieved. The word “capitulation” is being tossed around, and that is a good thing for buyers looking to pick up bargains.
Of course, market timing is always difficult, and many find that technical analysis is more akin to palm reading than a valid means of research. But, the power of TA lies in the fact that many practitioners exist and they believe it and time their purchases accordingly.
Here at ValuEngine we do not focus on technicals for our research, but we do use it as yet another factor when looking out for bargains. Obviously, if you are looking to buy low, it helps to see a bottom formation pattern on a chart. So, again, if you’re looking for cheap energy/oil stocks, you have more supporting evidence for the call now than you would have just a few months ago.