Energy Sector Review

Equipment Check:

The drillers continue to be my preferred group if one is itching to enter this nascent energy move higher. Will the second half of 2023 be when the group sees some tailwinds? Of course, no one could be sure of that but as always you want to purchase best-in-breed names if you are making a bet on the space. Akin to playing your all-stars if you want to win a ballgame. You do not put forth your Triple AAA players. While the larger names tend to dominate the headlines in the services arena with SLB and HAL being 21 and 28% off their most recent 52-week highs, the chart below of WFRD is just 11% off its annual peak (do not write off BORR which is drilling in on a 7.72 cup with handle pivot, pun intended). Its WEEKLY chart sports a bull flag which began with a bullish morning star pattern completed the week ending 7/29/22 that witnessed the stock accelerate higher by more than 30%. The daily chart here does show a move above a double bottom pivot of 61.69 and look for a potential move back to the round 70 number in the near term where it was soundly rejected on 3/7 with a bearish engulfing candle.

Round Number Resource Play:

Long-time readers of mine know my affinity with round number theory and below is a name not only an energy play but involved in materials as well which were the best-performing major S&P sector. GLNCY may have recorded a double bottom at the 10-figure to escape single-digit status with the mid-March lows and this past week. The stock is down 19% YTD but does carry a nice dividend yield of 6.5%. In 2023 it has advanced on a WEEKLY basis just 8 times, and there has not been an accumulation week since January when both weeks ending 1/13-20 rose by a combined 12%. On its MONTHLY chart, it found support around 9 which was a prior double top dating back to July 2014 and January 2018. It feels like that former ceiling is now a floor for the stock in the very long-term time frame. In my humble opinion if this name can get back above 11.50, I think it can make a sprint toward the 14 area where the name had trouble in late 2022. There one can reassess.

Recent Examples

Natural gas stocks have seemed to buck the trend for now as the resource is leaning back toward the lower end of the $2-$3 range it has been in since February. RRC continues to have issues with the round 30 number since dropping below it the week ending 9/16 which fell below if dropping 4.5% then saw the very next week crater downward by 16%. The weeks ending 2/24 and 5/19 encountered 30 rising 20.8 and 11.2% before being rejected. Below is the chart of another name in the arena with EQT and how it appeared in our 5/23 Energy Note. It is now just above the suggested entry PRICE but not far from it and its bullish inverse head and shoulders pattern is still intact. It is just a few percent away from its 200-day SMA but a clear bullish signal would be if it could catapult that secular line. I still believe this name will gravitate toward the very round 50 number sometime in 2023. The last 3 weeks all CLOSED very taut within just .46 of each other and we know that type of coiling action tends to lead to explosive breakouts.

Tidewater:

• Oil driller up 35% YTD and 83% over last one year period.
• Name 4% off most recent 52-week highs and has declined on a WEEKLY basis just 8 times thus far in 2023 compared to OIH falling 12 weeks. Week ending 5/26 TDW was up 4% while OIH was UNCH.
• Earnings reactions mostly higher up 5.9, 7.9, and 1% on 5/9, 2/28, and 11/4/22 after a loss of .8% on 8/5/22.
• Enter after break above cup with handle.
• Entry TDW here. Stop 46.

Noble Corp:

• Oil driller up 8% YTD and 11% over last one year period.
• Name 10% off most recent 52-week highs and this week held most of 7% advance week ending 5/26
• after prior 3 weeks all CLOSED tautly within just .38 of each other.
• Earnings reactions mostly higher (rose 5 of last 6) up 3.3, 2.7, and 3.8% on 5/4, 11/4, and 8/9/22 and fell 1% on 2/23.
• Enter on pullback into break above bullish falling wedge.
• Entry NE 39.75. Stop 37

Petrobras:

• Brazilian energy giant up 15% YTD and down 11% over last one year period. Dividend yield of 51%.
• Name 25% off most recent 52-week highs and consolidating 20% move the first 2 weeks of May here. The WEEKLY chart could be building the right side of cup base now 7 months in duration.
• Earnings reactions mostly higher up 4.9, 2.3, and 3.5% on 5/12, 11/4, and 7/29/22, and fell 3% on 3/2.
• Enter after recent break above bull flag.
• Entry PBR here. Stop 11.

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Originally Posted June 5, 2023